In a matter of months
Next week’s budget update will unveil spending cuts and revenue measures worth an extraordinary $4 billion this financial year - a task made all the more difficult by the fact the year has just eight months left to run.
Shocking revenue downgrades to be included in the update reveal that since May deteriorating international conditions and collapsing export prices have knocked $21 billion from projected tax revenues over the forward estimates and $4 billion from forecast tax revenue this financial year.
Without action the downgrades would wipe out this year’s planned $1.5 billion surplus and wipe out the next two years’ planned surpluses as well.
Writing in today’s Herald Treasurer Wayne Swan reaffirms his commitment to balance the budget next week but says he will cut with care, doing “everything possible to protect jobs and help pave the way for classic Labor reforms”.
“In balancing the budget, the Gillard government has made sensible spending cuts while winding back inefficient and outdated tax concessions. We have balanced fiscal discipline with continuing investments in people – our most valuable natural resource – through vital reforms in skills and education, a national broadband network and the national disability insurance scheme,” he writes.
The Herald understands the revenue downgrades overwhelmingly result from weaker international conditions. The Australian forecasts remain strong with economic growth of 3 to 3.5 per cent over the next two years, continuing low unemployment and contained inflation...
The publication of the virtually unchanged domestic economic forecasts will further pressure Opposition Leader Tony Abbott who has already been asked to explain why his predictions of “almost unimaginable” inflation and job losses resulting from the carbon tax have not materialised.
A Bloomberg survey of 25 market economists ahead of next Wednesday’s release of the first inflation data since the July 1 introduction of tax finds most expect a low annual inflation rate of close to 1.6 per cent.
The tax collection data suggests that if anything the domestic economy is somewhat stronger than expected at budget time. Both taxes collected from wages and goods and services tax collections are running ahead of projections.
Dramatically lower company tax collections account for most of the $21 billion writedown.
Treasury official David Gruen told a Senate hearing Thursday the spot prices of iron ore, thermal coal and coking coal have fallen 15 to 35 per cent since the May budget. These were the three big commodities that drove Australia’s terms of trade.
The budget had forecast a slide in the terms of trade of 5.75 per cent.
The update will say that although some of slides have been partially reversed they are no longer expected to return to the levels forecast in May.
It will revise down revenue forecasts for the new minerals resource rent tax and the petroleum resource rent tax in addition to cutting forecast company tax collections.
It will also revise down forecast income from non resource companies acknowledging generally weaker corporate profits across the economy. Profits from unincorporated businesses will also be revised down.
In today's Canberra Times, Sydney Morning Herald and Age
. MYEFO Monday. Cigs up November 1?
. MYEFO Madness. Research is shutting down
. About those cuts, Ms Wong. Money is fungible