Wednesday, May 12, 2010

To recap - there was a budget rabbit, there was a budget hat

Nice one.  And congratulations to Tony Wright who got it right

A dramatic turnaround in the nation’s finances has halved projected debt and put Wayne Swan in position to deliver just one more budget deficit.

A year ago in projections derided by market economists as too optimistic Treasurer Swan forecast deficits all the way until 2015-16 funded by $203 billion in government debt. The new forecasts slash the peak in net debt to $94 billion and put the budget back in surplus in 2012-13.

The change in fortune makes a mockery of Opposition claims that Labor will never deliver a surplus and renders near irrelevant the Coalition ‘‘debt truck’’ that toured Australia last year emblazoned with a picture of a bomb, a lit fuse and the size of the projected gross deficit - $315 billion.

The budget has net debt peaking in 2011-12, two years sooner than previously projected and has it paid off in 2017-18, three years sooner. Next year’s deficit will be $41 billion, well down on the $57 billion forecast in the last budget and the revised $47 billion forecast in the November budget update. It will be followed by a deficit of $13 billion and then what the Treasurer concedes will initially be a ‘‘small’’ surplus of $1 billion in 2012-13 widening to $5.4 billion the following year.

Driving what the Treasurer last night called the fastest fiscal tightening since the 1960s is an projected explosion in tax revenue as the economy improves and the mining boom gets under way with annual takings from company tax set to climb 47 per cent by 2013-14 and takings from personal tax 45 per cent...

Extending his commitment to save rather than spend the extra income Mr Swan last night committed himself to limit real spending growth to 2 per cent per annum for the entire next term of government and until 2015-16, when the surplus is expected to top 1 per cent of Gross Domestic Product.

The major savings that propel the budget into surplus include $12 billion to be raised over four years from the new Resource Super Profits Tax, $5 billion from the increase in tobacco tax, $1 billion from a crackdown on companies not passing on Goods and Services Tax, and a $1 billion cut to projected spending on foreign aid.

Ahead of the budget Mr Swan played down talk he would be able to bring down an early surplus saying a report the surplus could be four years early was ‘‘frankly, pie in the sky’’.

‘‘We get this sort of speculation before every budget,’’ he told the ABC’s Kerry O’Brien in March. ‘‘And that particular piece of speculation is most certainly pie in the sky.’’

Finance Minister Lindsay Tanner also rubbished the idea saying it was ‘‘totally over the top’’. Journalists were warned that speculation of an early surplus would prove wide of the mark.

So successful was the government in managing down expectations that this week Shadow Treasurer Joe Hockey challenged Mr Swan to bring in a surplus three years early saying if he could it would be a sign of good management.

The surprise surplus will see the Treasurer and Prime Minister appropriating the language of the Coalition, selling themselves as successful because they have slashed projected debt and moved the budget back to black.

Published in today's SMH and Age

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