In The Age and Sydney Morning Herald
It's looking like we'll never see a surplus.The first Hockey budget said we would get one in 2018-19. The second said it would happen in 2019-20. Now Treasurer Scott Morrison's update says it won't happen until 2020-21.
Every year the surplus moves a year further away. It's like driving towards an unreachable horizon.
Rather than level with us about the state of the budget, Morrison and Finance Minister Mathias Cormann have chosen to make things look better where they can. Several zombie savings from the Coalition's first budget live on in the mid-year update, even though the government will probably never see the money.
The $5 hike in the Pharmaceutical Benefits Scheme co-payment is one. Health Minister Sussan Ley killed it right after the May 2015 budget, declaring she was "not going to waste time putting things through the Parliament that are going to be voted down by my colleagues". Worth $1.3 billion over four years, for the purpose of the update, it is still alive.
All up, more than $20 billion of neither dead nor alive measures remain in the mid-year update, $7 billion worth of which are in the last year of the forward estimates, 2018-19. This means that if they don't spring to life, that deficit will be $7 billion worse and a surplus still further away.
Even though the iron ore price has collapsed from about $US60 a tonne to $US37 since May, the update assumes $US39 instead of $US48, a figure that's meant to hold for the rest of the next two years. Westpac's Bill Evans thinks that's bold. After all, the iron ore price is sliding. If it did stabilise it would be somewhere below, rather than above, where it is now.
Morrison's decision to play down the bad news is understandable. He reminded us that we are about to go into Christmas. There is "fresh momentum emerging in our transitioning economy". It would be wrong to threaten it.
It would certainly be wrong to hack into the budget, and Morrison hasn't. The announced savings do little more than compensate for the extra spending announced since May. Seriously cutting in order to return quickly to surplus would "have consequences".
The Treasurer didn't spell them out. The worst would be to snuff out the emerging economic recovery and bring closer the prospect of a recession. The recovery we've had so far is fragile. Even the boost in employment is centred in one state if we are to believe the Bureau of Statistics.
While the update has boosted the outlook for employment (the unemployment rate should fall to 5.5 per cent by mid-2017), it has downgraded nearly everything else. The economy will grow by 2.5 per cent this year instead of the earlier forecast of 2.75 per cent. Next year it will grow by 2.75 per cent instead of 3.25 per cent.
We are going to have to address the deteriorating budget outlook soon, even if the outlook remains fragile. The best way to do it would be to introduce measures that will take effect slowly, in the future. Next year's tax white paper provides the perfect opportunity.