Respected forecaster Deloitte Access believes Australia’s budget surplus has evaporated and its mining investment boom has only two years to run.
The new forecast marks a watershed in assessments of Australia’s prospects, implying in the words of this morning’s Access publication “that the strong bit of Australia’s two speed economy won’t stay strong for more than another two years or so”.
Deloitte Access is Australia’s leading private sector budget forecaster, set up by former Treasury economists in 1988 in order to provide services to both sides of politics.
Its report says Australia’s mining investment boom will slow more sharply than had been expected. “Mining companies are making it clear the current spike in investment is due to decisions taken a while back, whereas we are getting few new mining mega-projects across the line,” it says.
Access stresses its forecast does not present an immediate threat to Australia’s economic outlook but it comes after Labor’s narrow weekend byelection win in Melbourne in a state poll the Coalition did not contest, further complicating the task next year’s preelection budget.
Access director Chris Richardson said Mr Swan would face difficult decisions in November.
“That’s when the official budget update is due. If it shows this year’s forecast $1.5 billion budget surplus is no longer there he will have to decide whether to cut again in order to continue to forecast a surplus. The risk is the cuts will hurt.”
“The window dressing in the May budget was designed not to hurt. One of the tricks was to bring spending forward from 2012-13 to 2011-12. It was a popular sleight of hand, but it can’t be done again... This time he would have consider delaying payments, and that would be unpopular.”
Mr Richardson said had no problems with the government’s budget forecasts at the time they were presented. But since then coal and iron ore prices have turned down, and the sharemarket has dived.
“The budget is more exposed to commodity prices than it used to be. They drive profits which drives company tax but they now also drive takings from the minerals resource rent tax.”
“The budget forecast nominal GDP growth of 5.5 per cent in 2011-12 and 5.0 per cent in 2012-13. Our forecasts have it more like 4.7 per cent and 4.2 per cent. Unless there’s a fresh turnaround its forecasts won’t be met.”
Mr Richardson was unable to say by how much he thought the budget would undershoot the government’s May forecast, saying it was still a “moving target”.
But he was prepared to say the carbon tax would have little economic impact. “If is a far bigger issue politically than economically,” he told the Herald.
Treasurer Wayne Swan hailed the Access report as an endorsement of Australia’s economic strength saying it helped show the carbon tax scare campaign “was nothing more than a fraud”.
He took to twitter using the hashtag #EcoFact to claim that Australia had just passed 21 consecutive years of economic growth. Previously used to denote discussion of ecological matters the hashtag was taken over by critics who said the economy was in good shape “despite Labor’s efforts” and that he had broken a promise over the defence budget.
Shadow Treasurer Joe Hockey said the budget surplus was under threat “because it was never real in the first place”.
“Labor only forecast a surplus through a cook-the-books Budget that was noted more for money shuffles than fiscal responsibility,” he said.
Mr Richardson said one upside of an early end to the mining investment boom would be lower interest rates.
“The Reserve Bank has had to create room for for the investment boom. Without the boom it will be able to do more to help families. The rebalancing will not be a complete negative, but it will mean economic growth will not be as strong as it was,” he told the Herald.
In today's Sydney Morning Herald and Age
. Parkinson's Paradox: The tight budget that's not economically tight
. Hold on to your hats. Hockey takes us through the budget fiddles
. Future Treasurers won't thank Wayne Swan