Labor’s promise of a budget surplus next financial year has turned to ashes. Access Economics says the budget will be in deficit in both 2012-13 and the election year of 2013-14, a projection it says will confirmed in the official mid-year budget update due for release shortly.
Such an outcome would open Labor to the charge that it hadn’t delivered a surplus in government in more than 20 years.
But Access has warned Treasurer Wayne Swan against “panel beating” the budget into surplus by finding billions in extra savings, saying such a “gung ho” approach would be dangerous in the current circumstances.
The May budget forecast a deficit of $22.6 billion this financial year followed by surpluses of $3.5 billion and 3.7 billion.
Access says instead it expects a mammoth $31.2 billion deficit this financial year followed by deficits of $1.9 billion and $1.7 billion in 2012-13 and 2013-14
It says the projected 2013-14 deficit will make hard for the Treasurer to artificially create a surplus in 2012-13 “by just shifting money across years”.
“They would have to actually change policy by raising taxes, fees and fines or cut spending,” Access Director Chris Richardson told The Age.
“But the economy has already weakened and events in Europe hold out the prospect of it weakening further. I don’t think that tightening into that fragility would help the economy.”
Mr Richardson said his advice applied to both sides of politics...
“Mr and Mrs Suburbs think a dollar in surplus means you’re a genius, and a dollar in deficit means you’re a dunce. Politicians of both sides have played to that. They should back off.”
“Abandoning the surplus will be a bitter pill for the government to swallow and an easy target for the opposition to attack. The government should do it and the opposition should hold fire."
The May budget forecast a jump in company tax revenue of 29 per cent in 2011-12, a projection Access thought was reasonable at the time.
But a plummeting share market and a slower than expected recovery from the floods and cyclone now mean the company tax take will only jump by around 22 per cent, an outcome Access says Mr Swan should live with.
The twice-yearly Deloitte Access Budget Monitor is regarded as the most reliable measure of government finances outside of those produced by the government itself. The Reserve Bank update released Friday also pointed to lower than expected economic growth. The Treasurer’s update is running late. For the past three years the so-called Mid Year Economic and Fiscal Outlook has been released on or around Melbourne Cup Day. This year it will be released closer to the end of the year.
Appraised of the Access report Mr Swan appeared to reject its advice saying said he remained “determined to return to surplus in 2012-13 as planned”.
“Fiscal rigour is absolutely critical at a time when global financial markets are punishing those without discipline,” he said.
Finance Minister Penny Wong also backed a surplus but told ABC television “of course if there's an impact on the global economy from the sort of turbulence and volatility we've seen that's going to have an impact on growth here in Australia and an impact on the budget.”
“We've been upfront about that. It's common sense.”
Ms Wong said the Greek parliament had “stepped back from the brink” by narrowly rejecting a no confidence motion that would have endangered its $179 billion European rescue package.
“But there is more that needs to be done, the eyes of the world are still focused on the Europeans to get on and implement the plan,” she said.
The Access report said while it did not expect a disaster in Europe, if there was one the government should be prepared to spend to stimulate the economy as it did during the global financial crisis.
“For all the unpopularity of the stimulus spending, it did its job very well. Please don’t let populism derail a new stimulus if we need it,” the report said.
Published in today's SMH and Age
Treasury May budget forecast:
2011-12 $22.6 billion deficit
2012-13 $3.5 billion surplus
2013-14 $3.7 billion surplus
Access Economics November forecast:
2011-12 $31.2 billion deficit
2012-13 $1.9 billion deficit
2013-14 $1.7 billion deficit
Statement from Swan:
"We have been saying for some time now that global instability will inevitably have an impact on our budget, and although this makes our task a lot tougher, we remain determined to return to surplus in 2012-13 as planned.
Our fiscal rigour is absolutely critical at a time when global financial markets are punishing those without discipline, and it has given the Reserve Bank the room to move on monetary policy as we saw last week.
The hit to government revenues caused by the global uncertainty means we’ll continue making tough budget decisions to create space for the economy to grow."
. Downgrade. Your forecasts won't be met - Reserve
. Wednesday Column: Long ago the budget looked good
. About that budget forecast of 500,000 extra jobs. Er...