The government needs export prices to fall no further in order to have any hope of painlessly delivering its promised budget surplus.
A statement of risks published with the budget update shows that if Australia’s terms of trade fall a further 4 per cent (on top of 8 per cent now forecast) the government will lose an extra $2.8 billion in tax revenue, enough to obliterate what is now a wafer-thin $1.1 billion forecast surplus. It would lose the $2.2 billion surplus expected for the following year as well, suffering a revenue hit that year of $6.7 billion.
The update shows the Australian economy performing well, with economic growth of 3 per cent expected this year, down only slightly from the 3.25 per cent expected at budget time. Employment is expected to grow and unemployment is expected to stay almost exactly where it is at 5.5 per cent right through to mid 2014.
But the international economy has turned against Australia sharply. Between the May budget and the first week of September the spot price of iron ore slid 38 per cent, before clawing back two thirds of the fall in October. The world has suddenly become less generous to Australia than it was in May, pushing company and mining tax collections $4 billion lower than expected this financial year and $20 billion lower over the next four years.
The biggest trick used to make up the shortfall this year is to grab half a billion dollars worth of superannuation money that would otherwise be sitting around unclaimed in unidentifiable accounts. Until now those funds had to lay unclaimed for five years before the Tax Office grabbed them and parked them in consolidated revenue. That period has been cut to one year, effectively channelling five years of unclaimed monies into one year’s budget. Another trick is to “reprofile” government grants, paying in future years what would have been paid this year.
Over the four year forecast period by far the biggest trick is to make companies hand over their tax payments monthly instead of quarterly. It’ll first be big companies with turnovers of $1 billion (from January 2014) then mid size companies with turnovers of $100 million from January 2015 and companies turning over $20 million from January 2016. Over four years this will rake in an extra $8.3 million - accounting for half of the $16.4 billion the Treasurer is saving over four years. Wayne Swan said yesterday no companies would pay a single extra dollar in tax as a result of the change, and he is right - but as each group of companies moves to quarterly payments it will hand over 14 months of tax in the first 12-months, paying in May and June two thirds of the payment that wouldn’t have been due until July 21. Mr Swan isn’t the first Treasurer to pull forward company tax payments - his predecessor Peter Costello did something similar.
Not all of the measures are fiddles... Some have set up future Treasurers for the long term. Mr Swan has freed the budget from the jaws of the private health funds who until now have had the government rebate a portion of whatever fees they chose to set. From 2014 government rebates will increase only in line with the more slowly moving consumer price index. At the moment the CPI is climbing 1.2 per cent per year. Health insurance premiums have been climbing 5 per cent per year. It’ll save $700 million over three years and that’s just the start.
Lifting visa charges for people wanting to move to or work in Australia will raise $500 million over four years, and more as they are benchmarked to charges overseas.
Mr Swan has used just about every trick available to him to to keep the budget in the thinnest of surpluses without pain. Should export prices turn down further, there will be little more he can do.
In today's Sydney Morning Herald
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