Monday, April 04, 2011

Oh yes... Swan's Budget is under attack from all sides

The Treasury has revised up its estimate of the economic impact of the January floods and cyclone warning Treasurer Wayne Swan they could send the economy backwards.

“With already patchy growth in some sectors, the impact could lead to flat or even negative growth in the March quarter, although there is likely to be a rebound in the June quarter,” the briefing note says.

The most recent national accounts have the economy growing at an annual rate of 2.7 per cent.

The Treasury forecast would cut Australia's  2010-11economic growth rate from the previously-forecast 3.25 per cent to 2.5 per cent.

Treasury has revised up the cost to the nation in lost production from $8 billion to around $9 billion, 6 billion being from lost coal production, with exports 22 million tonnes lower than previously expected...

“The flooding affected both mine production and rail infrastructure,” the briefing note says. “Mines in the Bowen Basin ceased production due to direct flooding while the Goonyella, West Moreton and Blackwater rail lines were flooded. While rail operations have been largely restored, it is yet to be determined when mine production will be restored to full capacity. Reports suggest that the de-watering process may take a few months.”

The floods will slice around $1 billion off rural production, mainly grains , sugar and cotton. Cyclone Yasi will cut production of tropical fruit and sugar by a further $700 million. Victoria is expected to lose $250, mainly in the production of grapes.

To the $9 billion hit to production will be added a $2 billion hit to export earnings resulting from the Japan earthquake and tsunami.

On the other side of the ledger the government will be spending an extra 5.6 billion on reconstruction and support in Queensland, only partly offset by the $1.8 billion flood levy.

Treasurer Swan said yesterday there would have to be “tough decisions” in the May budget if the government was to stick to its fiscal rules.

The November mid-year review forecast a budget deficit for the current financial year of $41.5 billion.

The monthly financial statement for January showed revenue tracking $3 billion lower than projected.

Published in today's SMH

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