Australian government budgets are under pressure. Our analysis of the budget positions of the Commonwealth and the three major states shows that rising costs, a shortfall in tax revenues, declining minerals prices and big political promises could see a combined annual deficit of around 4 per cent of GDP by 2023. The greatest single pressure comes from growing health spending. Balancing budgets is difficult but it can be done – provided governments are prepared to make tougher choices than they have made over the past decade.