Former treasurer says economic reform in Australia will take 'financial crisis'

Former treasurer Joe Hockey says voters will not back meaningful fiscal reform unless there is a "financial crisis".

He says a major problem is government spending with "no restraint" in order to be re-elected.

As global interest rates rise, governments are under pressure to reduce spending.

With federal government debt surpassing $1 trillion, and future generations bearing the burden of the growing interest bill, the clamour for budget repair is growing.

But last night, Australian treasurers past and present delivered some insight into the difficulty of getting any kind form of meaningful reform across the line, one before an audience of power brokers and the other on ABC's The Business.

Joe Hockey, former treasurer in the Abbott Coalition government, knows full well the difficulty of introducing any kind of fiscal reform.

In his first budget, shortly after coming to power in 2013, Mr Hockey up-ended a raft of assurances during the election campaign with a series of wide-ranging spending cuts and user pay fees that enraged the electorate.

The Abbott government ended up backing away from most of the swingeing cuts in the face of that opposition.

When asked by The Business host Kirsten Aiken whether any meaningful fiscal reform was even possible if it cost voters money, his answer was an emphatic "no".

"And people will only take the medicine when they, you know, feel really ill about it. And I think this is coming right across the world."

His sentiments were echoed by current Treasurer Jim Chalmers in his address to an Australian Financial Review gathering on Tuesday.

Jim Chalmers says debt and deficits are escalating worldwide. (ABC News: Matt Roberts.)

Mr Hockey pointed to an inflection point occurring across the developed world in government finances where income tax, the biggest source of government income, is about to be exceeded by welfare payments.

"The problem is governments have no restraint when it comes to expenditure," he said.

"They're so focused on populism, they'll spend whatever it takes to get re-elected and that's particularly acute now that … one side of government isn't getting 50 per cent of the votes."

The fragmenting of political parties and voting patterns has made the task even more difficult as temporary coalitions of divergent parties are formed.

"You're going to be populist because you're trying to win the votes of some minority over there," Mr Hockey said.

The phenomenon may now be more acute, but it certainly is not new.

As treasurer, Mr Hockey philosophically was more aligned with the school of thought pushing for lower taxes and less spending.

He oversaw the dismantling of a key aspect of the Henry tax reforms by abolishing the resources rent tax and the carbon tax, which significantly reduced the federal government's tax haul.

When combined with his ditched spending cuts, the end result was a decade of deficits during the greatest resources boom in Australian history.

Earlier this week, Mr Chalmers delivered the seventh and latest Intergenerational Report, which laid out the challenges of ever delivering a balanced budget over the long term.

An aging population with ever greater costs associated with health and aged care and with a smaller proportion of workers supporting them points to an ongoing and possibly permanent structural deficit.

Yesterday, the treasurer pointed to the escalating debt and ongoing deficits amongst the world's most powerful economies, which in recent months have sent global interest rates higher, adding to the already substantial financial strains.

"We are not entirely powerless in the face of all this," he said.

"We have advantages, we are better placed and better prepared and we have a better plan than other countries.

"But the point remains that something as consequential as the world's ability to finance its budgets is, to some degree, hostage to decisions taken in Washington and on Wall Street."

It was a point that Mr Hockey concurred with.

"You can't keep borrowing hoping that it'll just go away. And the United States is no different."