Budget repair the major priority: Grattan

The Grattan Institute insists the next parliament must make budget repair the major priority or risk being left vulnerable in an economic downturn.

Whatever the outcome of the July 2 election, budget repair must be the major priority of the next national parliament, otherwise younger generations will end up paying thousands of dollars in extra taxes.

That's the warning of the Grattan Institute's boss John Daley, who also believes the state of the budget has left Australia vulnerable to any future economic downturn while affecting the triple-A credit rating.

"Our politicians are creating expectations that far exceed what government can ever do, while often failing to act on the things they can control," Mr Daley said on Tuesday, releasing a report on what should be the key election issues.

The compilation of previous reports by the institute over the past seven years calls for tax reform to increase efficiency, need-based transport spending, strengthened climate change policy, energy market reforms and improving labour force participation.

But he places budget repair as the major priority, having not been even close to balance for eight years.

He estimates every $40 billion deficit - the norm in that time - forces households aged 25 to 24 to pay an extra $10,000 in tax over their working lives to pay for today's spending.

The budget also leaves the economy exposed.

"With interest rates at historical lows, the Reserve Bank can do little more to stimulate the economy, and so the Commonwealth budget will be the primary defence in an economic downturn," the report says.

It calls for spending reductions and targeted tax increases, including raising the GST and reducing capital gains and negative gearing tax concessions.

However, if current deficits continue, it will inevitably affect Australia's triple-A credit rating and consequently the credit rating of state governments and the private sector.

"This will increase interest costs, further dragging on government budgets," it says.

Mr Daley said Australia has a proud history of enlightened public policy.

"It can continue to be the lucky country. But we must make our own luck."