This paper examines whether the independent Parliament Budget Office (PBO) is being too optimistic in its current assessment of the fiscal sustainability of the Australian Government over the next forty years. Our analysis is based mainly on a careful assessment of their projection methodologies and scenario design. To highlight the key vulnerability in the PBO’s methodology we develop an alternative projection that points towards an unsustainable fiscal path unless remedial steps are taken. We end by thinking about some novel policy reforms to help avert the possible fiscal cliff.
