Monday, March 22, 2010

Here's $42 billion. Spend it quickly.

You can't. Things slip. They have

New official figures show government spending running some $5 billion below forecasts raising the prospect it has been unable to spend stimulus money as fast as it planned.

The Finance Department update has the government spending $192.1 billion in the the seven months to January rather than the forecast the $197.4, a shortfall of $5.3 billion.

By contrast revenue is little changed on the Budget forecast, being just half a billion higher.

"It looks as if they're finding it harder than anticipated to get stimulus spending out the door," said Access Economics Director Chris Richardson.

"If maintained, this will be good for the Budget bottom line... This year's deficit will come in nearer to $50 billion than the forecast deficit of $58 billion."

Finance Minister Lindsay Tanner cautioned in releasing the figures that some of the disparity could be due to changes in the timing of grants.

But Mr Richardson said the $5.3 billion shortfall was significant, and was far too big to be explained solely by lower than expected unemployment payments.

New labour force figures add weight to the theory that the government is finding it hard to spend its stimulus money as quickly planned. In February the number of male labourers working more than 60 hours per week climbed to its highest point in more than seven years.

Late last year education Minister Julia Gillard announced a rescheduling of some schools spending to take account of labour shortages and in February the government suspended its home insulation program and reconfigured its Green Loans program.

Access and forecasters including the ANZ and Commonwealth banks are forecasting a dramatically improved budget position in future years and a swift return to surplus as improved tax revenues start to flow from much higher resource prices.

"But that money isn't flowing yet. The higher resource prices are being negotiated now, but they won't show up in tax for six to nine months," said Mr Richardson.

BHP this month secured a 55 per cent increase in coking coal prices from Japan as well as quarterly pricing, meaning the prices will be renegotiated every three months instead of being set for a year as in the past. The world's biggest iron ore producer, Vale of Brazil, has announced that it too plans to scrap annual negations and is pushing for a 90 per cent increase.

"It's going to deliver a tonne of revenue. It's not going to happen overnight, but it will happen."

Access Economics is tentatively predicting a return to surplus in 2012-13, the Commonwealth Bank a return to surplus in 2013-14, and the ANZ a possible return to surplus as soon as 2010-11.

The government's own budget papers don't predict a return to surplus until 2015, and the Coalition's Treasury spokesman Joe Hockey has claimed "the Rudd government will never deliver a significant surplus."

Treasurer Wayne Swan has poured cold water on talk of an early return to surplus claiming "that particular piece of speculation is most certainly pie in the sky".

Published in today's SMH and Age

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