Friday, April 27, 2012

Swan's going to cut deep - we don't know the half of it

Far from delivering the promised $1.5 billion budget surplus, Treasurer Wayne Swan is on track to deliver a deficit of $8 billion unless he cuts far harder than he had been planning according to a private sector analysis traditionally delivered a week before the budget.

Macroeconomics, a consultancy run by former Treasury modeller Stephen Anthony finds the 2012-13 budget position $10 billion worse than forecast in the government’s November mid-year update.

Most of the collapse is due to a $6 billion shortfall in company tax revenue compared to what was expected at the time of the update.

“It’s losses throughout the tax base,” Mr Anthony told the Herald. “The Tax Office reckon they’ve reached 24 per cent of GDP. Usually they are 6 to 8 per cent of GDP. These are losses spread amongst individuals, super funds, trusts and companies, and they include capital losses in place of capital gains.”

“Along with declining terms of trade, a weaker than expected economy and mining industry depreciation expenses in place of taxable profits, it has put a spanner in the works.”

The Macroeconomics model projects structural budget deficits for the next decade and continued growth in government debt unless very big cuts are made tuesday week and spending growth is kept tight for the rest of the forward estimates.

“The Treasurer needs to cut $10 billion to deliver a surplus and $15 billion to deliver a structural surplus,” Mr Anthony said. “Otherwise there will be no sustainable return to surplus this decade".

Mr Anthony said government commitments were making Mr Swan’s job harder...

“Lifting the superannuation guarantee to 12 per cent will see the cost of the concession rise as the value of superannuation assets climbs. Yet the supposed funding comes from the mining tax which will diminish in GDP terms when the boom ends. The gap between the two could reach $5 to $7 billion by 2019-20.”

A list of suggested budget cuts included in the report is headed by “middle and upper class welfare”. “We suggest spreading the pain of adjustment as thinly as possible and imposing the largest burden on those likely to benefit from an upswing in the business cycle,” the report says.

“The idea is not to abolish programs but to target them to individuals on the basis of
hardship rather than electoral success.”

“Large savings can also be achieved through the widespread adoption of competitive
tendering processes, and incorporating economic efficiency principles into contract design especially for the purchase of large capital items, public works and defence weapons platforms.”

Macroeconomics predicts a boost in economic growth to a “respectable” 3.1 per cent in 2012-13, slowing to 2 per cent by 2015-16 as mining investment falls away.

In today's Sydney Morning Herald and Age

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