CANBERRA: The Australian budget is facing deficits $38 billion worse than forecast and on present settings will never return to surplus, an authoritative new analysis has found.
Released just a fortnight before Treasurer Scott Morrison officially updates the budget in the mid-year review, the Deloitte Access Budget Monitor finds this year’s deficit will be about $40.3 billion rather than the forecast $35.1 billion, the next year’s $34.1 billion rather than $25.8 billion, and the deficits in 2017-18 and 2018-19 $11.3 billion and $12.7 billion worse.
It comes days after Treasury revised down its long-term economic growth projections, a downgrade not fully reflected in the Deloitte Access report.
“That line on the budget graph that shows the deficit disappearing, it never gets there on our projections,” Deloitte Access partner Chris Richardson said.
Declining Chinese economic growth and sliding commodity prices are set to drag down company tax collections with receipts $4.4 billion less than expected in 2015-16 and $7 billion less in 2016-17.
Superannuation tax collections will be $2.2 billion less than forecast. At $7 billion in 2015-16, they will be only slightly more than half the $12 billion collected in 2007-08 before the financial crisis.
Historically low interest rates will keep interest income “subdued”, and a surge in deductions related to negative gearing will hold back net rental income.
Record low wage growth will cut pay-as-you-go tax collections by $2.1 billion in 2015-16 and $2.6 billion in 2016-17. The report says the low wage growth is a “double disappointment” because it will also blunt the effects of bracket creep, meaning fewer workers than expected will move into higher tax brackets and push the budget back towards surplus.
On the positive side, rapidly growing real estate prices will boost capital gains tax receipts and the lower dollar will boost customs duties through higher import prices.
Deloitte Access expects the economy to be 2.5 per cent smaller than forecast by Treasury by 2018-19, a loss of $48 billion.
“You may think we paint a grim picture of the remaining task of budget repair,” the report says. “But you would be wrong. Among the wildly optimistic assumptions underpinning our own figuring are that the Senate passes in full the savings still before it within a year from now, the states roll over on the cuts they face and sing kumbaya, and that the Beatles get back together. Oh, wait …”
If the Senate does not pass the stalled budget measures the deficit will be another $67 billion worse than expected during the next 10 years.
Mr Richardson said while he wouldn’t describe the budget repair task as urgent, both sides of politics had “strikingly mismanaged” Australia’s finances and repair kept getting harder.
The forecasts came as the BIS Shrapnel consultancy released a report predicting further big declines in mining investment. The report says after sliding 11 per cent in 2014-15, mining investment will slide 25 per cent this year and a further 25 per cent next year.
“This sharp fall in investment is occurring at a time of weaker prices, forcing the high-cost producers to rethink their mine plans and the nature of operations,” it says. “This paradigm shift is not expected to be temporary. Some high-cost producers were forced to place their operations in care and maintenance while low-cost producers pushed forward to carve out a greater share of the market.”
BIS Shrapnel says the industry will lose a further 20,000 jobs during the next three years on top of the 40,000 direct losses since the investment peak.
Treasurer Scott Morrison said the government would continue to make progress in cutting the deficit “despite the significant headwinds of falling commodity prices and the transitioning of our economy from the strong investment phase of the mining boom”.
“We are not in denial about the challenges that we face globally or at home,” he said. “We are just getting on with the task of strengthening the budget and growing our economy.”
“Had we stayed on Labor’s spending path the budget would be almost $80 billion worse off over this budget year and the forward estimates. ”
Labor treasury spokesman Chris Bowen said Mr Morison had been wrong to claim that the budget “did not have a revenue problem”.
Deloitte’s forecast of $38 billion in additional deficits came on top of a doubling of the budget deficit in the past year.
The government will finalise the numbers for its mid-year update in the next two weeks after the release of the September-quarter national accounts on Wednesday. The mid-year update is not expected to include major changes to taxation, which will be held over until the green paper and the white paper to be released in the new year.
