Declaring that the global financial crisis had knocked a $40 billion hole in future budget surpluses the Treasurer Wayne Swan signalled that a swathe of government plans including infrastructure spending and grants to the states were up for review while promising to deliver pension reform as promised.
“There are a large number of areas which we are ambitious to proceed in, in which we will have to take tough decisions and make tough choices,” the Treasurer said while launching the mid-year budget update. "But we have implemented all of our election commitments in the context of the last Budget. We have ambitious plans across a range of areas. We are going to have to cut our cloth to suit the circumstances”.
Tax receipts are forecast to collapse $4.9 billion during the current financial year and then by more than $30 billion over the next 3 years as capital gains tax and corporate tax revenues slump.
“All of that all is a consequence of what's going on internationally,” he said. “Of course if international conditions were to deteriorate further, then there could be more to come"...
This year’s budget surplus will drop from the projected $21.7 billion to $5.4 billion as a result of spending on the multi-billion economic stimulus program and waning tax revenues.
Economic growth will slip from 2.75% to 2%. Asked whether it would remain positive in each quarter or briefly slip into negative territory as predicted by forecasters including Westpac the Treasurer replied, “we expect growth to be positive, okay? That is our forecast and we have forecast this as we normally forecast these matters – 2% positive growth. I can’t be any clearer than that.”
The revisions came as the Statistician released building approvals data described by the ANZ as “an absolute shocker”.
Building approvals fell 7% in September and 22% over the year with approvals in NSW slumping to the lowest level on record.
“You’ve got to start taking the prospect of a recession very seriously when you see that kind of fall,” said ICAP Securities economist Adam Carr. “It’s tighter lending standards and the negative outlook for property prices.”
Asked to describe the risks attached to the government’s new forecasts Mr Swan said the risks were on the downside.
“But having said that, coordinated global action is occurring. You’ve seen action in terms of monetary policy and other governments move to stimulate their economies. Both those things, I think, hold out the prospect of stabilising conditions.”
The Opposition Leader Malcolm Turnbull said the forecasts were not as grim as the Treasurer’s language suggested.
“Growth is projected next year to remain positive. Compared to other countries that would be a very good result. I am concerned that the
government does not have a very good handle on these issues of economic management,” he said.
As Mr Swan held open the possibility of cutting the budget surplus further the Shadow Treasurer Julie Bishop said he was yet to deliver one.
“All he has done is forecast a Budget surplus and he has now reduced it to $5 billion. He has cut three quarters off the surplus he inherited. He is yet to deliver a surplus.”
Mr Swan said he was not “forecasting going into deficit in any single year” but that if “international conditions were to further deteriorate, that would have an impact on future surpluses”.
Westpac’s chief economist Bill Evans said it would be entirely appropriate to move the budget modestly into deficit.
“Recall that the fiscal rule is to balance the budget over the cycle. And with no net debt, there will be no concern from a balance sheet point of view,” he said.