Treasurer Scott Morrison is sticking to his plan to return the Budget to surplus by 2021, even though the bottom line will worsen by just under $11 billion
THINGS will get worse before they get better.
That is the dire warning from Treasurer Scott Morrison after the mid-year budget update showed a worsening bottom line of about $11 billion over the three next years before reaching a balance in 2021.
The mid-year budget review released today shows a tiny improvement in this year’s financial position from a deficit of $37.1 billion at the time of the May budget to $36.5 billion.
However, over the next three years the bottom line worsens by just under $11 billion.
By 2019-20 the deficit will still be $10.4 billion.
Mr Morrison was confident he can return it to surplus by 2021.
But Federal Labor has warned the Turnbull government’s plan to return to a “wafer- thin” budget surplus could be blown over by the slightest breeze, hitting out at “zombie savings”.
The Treasurer said the budget was in better shape today than it had been at the last mid-year review and that Australia’s economic outlook remained positive despite the latest national account figures showing growth had declined 0.5 per cent over the September quarter.
But Mr Morrison said he didn’t want to repeat Labor’s mistake of forecasting budget surpluses and not achieving.
“These are the projected outcomes on the cash balance based on the information that is currently before us and the best assessments we can make of that,” he said.
“On the best information we have able to us, the government’s plan to return the budget to balance is projected to be in 2021 and that is something that says our plan remains on track.”
Despite the many global and domestic challenges facing Australia the total deficit over the next four years of $94.9 billion is better than it was a year ago when it stood at $108.3 billion.
Economic growth forecasts have also been cut in the wake of the recent national accounts which showed the economy shrinking and posting its worst performance since the 2008-2009 global financial crisis.
All sides of parliament agreed with budget repair, but “what we won’t do is sell out our values”.
As well it was time for the government to drop its unfunded $50 billion plan to cut the company tax rate over 10 years.
The mid-year budget update shows a tiny improvement in this year’s financial position but with a worsening bottom line of about $11 billion over the three next years before reaching a balance in 2021.
“Today Australia’s poor excuse for a treasurer is out of excuses,” shadow treasurer Chris Bowen told reporters in Sydney.
The budget was still factoring in so-called “zombie” savings measures that had no chance of clearing parliament.
“The government should accept reality – that their plans do not meet with the support of the Australian people or the Australian Parliament,” Mr Bowen said. “The budget should be a more realistic document which reflects that fact.”
Opposition finance spokesman Jim Chalmers scored the government’s budget performance a “triple F” that was putting Australia’s gold-standard triple A credit rating at risk.
“In this budget update, we see bigger deficits, more debt, more exclusions, and a government which is part of the problem and not part of the solution,” he told reporters.
Net debt was $100 billion higher than the figure the coalition inherited from Labor while gross debt would break through $600 billion in the next four years.
Growth is now forecast to be two per cent in 2016/17 rather than 2.5 per cent as previously predicted.
The report says recent higher iron ore and coal prices will help support tax revenues, but this will be more than offset by weaker wage and non-mining company profits.
As a result, Treasury has opted to use more “conservative” assumptions for bulk commodity prices than usual.
Former Prime Minister Tony Abbott’s green army plan was axed to save $224.7 million over four years, although existing contracts will continue to be funded.
The savings will help pay for a $100 million investment in Landcare, as part of an agreement struck with the Greens to win its vote for the controversial backpacker tax.
A trial to subsidise nanny fees will be scaled back from 3000 to 500 places, saving the government $170 million over two years.
In a joint statement, Mr Morrison and Finance Minister Mathias Cormann said the economy was continuing its transition in the wake of the mining investment boom, despite the downward revision to growth forecasts.
“Economic growth is expected to increase over the forecast period, as the drag from the decline in mining investment dissipates and the economy transitions to broader-based growth, supported by historically low interest rates and a lower Australian dollar,” they said.
“Exports and household consumption are expected to support growth, with dwelling investment higher in the near term.”
Non-mining business investment was expected to pick up modestly in coming years, despite volatility in commodity prices making forecasts challenging.
“To support economic growth the government will continue to implement our national plan for jobs and growth,” the ministers said.
Treasury’s unemployment forecasts remain largely unchanged from May, at 5.5 per cent for 2016-17 and 2017-18 with a slight downgrade in projections for the final two years of the forward estimates — from 5.5 per cent to 5.25 per cent.
Economic growth is expected to come in at two per cent in 2016-17, remain below trend at 2.75 per cent in 2017-18 before picking up to three per cent in 2018-19, according to the mid-year economic and fiscal outlook released on Monday.
It’s a deterioration from the May budget, which had GDP at 2.5 per cent in 2016-17 and three per cent in 2017-18 and followed shock September quarter growth figures showing the economy posted its worse performance since the global financial crisis.
Inflation forecasts have also been downgraded to 1.75 per cent in 2016-17 from two per cent — below the Reserve Bank of Australia’s preferred two-to-three per cent target range.
Morrison earlier said he wouldn’t shelving any of the government’s election commitments despite a deteriorating budget position.
But the coalition needed partners in the parliament to help it return the budget to balance.
Mr Morrison will be hoping global credit rating agencies will be just as forgiving when he hands down his midyear budget review today.
Speaking to reporters in Canberra, Mr Morrison said the government would come good on all its election commitments, but in a way that did not retreat from the job of budget repair.
The government could put forward savings measures “as we do” but they needed parliament’s support to ensure the trajectory of returning the budget to balance was maintained.
Mr Morrison said Australia faced very difficult fiscal and economic challenges.
“I think we need … a strong wake-up call about the need to understand the depth of these challenges,” he said.
Mr Morrison said the update was a careful document that took into account many things that had happened during the past five to six months, including major shifts in commodity prices and negative growth in the September quarter.
“This shows a very prudent, a conservative and responsible outlook of the Australian economy.”
His comments come as survey has found two out of three Australians think budget deficits are okay in certain circumstances.
However, economists believe there is a 50/50 risk of the nation losing its triple-A rating if the budget has deteriorated since May as to delay a projected surplus in 2021.
A downgrade would hit confidence, raise borrowing costs and be a huge embarrassment for the government.
Deloitte Access Economics economist Chris Richardson said both sides of Parliament were to blame for the current state of the budget but Opposition parties had been the real “weapons of mass destruction” in Australian politics over the past two decades.
“What gets done in Australia these days depends much more on Oppositions than it does on Governments,” Mr Richardson told ABC today.
“It takes two to tango in terms of Budget repair.
“Absolutely happy for parliament, both sides to be blamed but we need to up the ante, the pressure on Oppositions to be more responsible.
The Australian public was also to blame, Mr Richardson said.
“The Australian public happily took eight personal income tax cuts in a row and took massive increases in family benefits and at the time baby bonuses and all those sorts of things,” he said.
“As a nation we made the oldest mistake, one Australia’s regularly made — we assumed a boom was permanent and we spent it, we made permanent promises to ourselves. That boom turned out to be temporary.”