Federal Treasurer Wayne Swan has admitted the Government faces a tough task to return the budget to surplus by 2012-23 as promised, after revealing that patchy business conditions and Australia’s run of natural disasters has conspired to cut tax revenues by $4 billion.
Swan, who will deliver his fourth Federal Budget on May 10, said in his weekly economic note that the Government’s budget position has worsened noticeably since he released his mid-year economic update in late 2010.
“The summer’s natural disasters, continued consumer caution, the subdued recovery in household wealth, and the higher dollar are all weighing heavily on government revenues,” Swan said.
“Commonwealth tax collections over the first eight months of this financial year are down around $4.5 billion against where we had forecast to be at this time of year. Personal income tax collections are about $1 billion lower while business tax collections are down around $3 billion.”
In addition to the problem of weaker company profits due to the natural disaster and consumer slowdown, the Government has also been hit by a lower take from capital gains tax because of the sluggish performance of the Australian sharemarket.
“Losing big slabs of revenue like this of course makes it even tougher to get back to surplus as planned, but we’re determined to make the difficult decisions to meet that commitment.”
In November, the Government forecast the underlying cash deficit for 2010?11 would be $41.5 billion (3.0% of GDP), with a surplus of $3.1 billion (0.2% of GDP) in 2012-13.
However, the costs associated with disaster recovery and the falls in tax revenues mean that achieving the task of bringing the budget back to surplus in 2012-13 will not be easy and the Government has begun the task of softening up voters from the process of cuts.
“It won’t necessarily be a popular budget but it will be a budget that’s very focused on the short- and long-term needs of the economy,” Finance Minister Penny Wong told ABC Television yesterday.
One area likely to be targeted for cuts is health spending.
Reports this morning suggest the Government will announce $550 million in cuts over five years from pathology services costs by announcing a new deal with the pathology sector that will cap annual spending growth at 5%.
Over the last decade, pathology services have been growing at 6.7% a year. The sector receives about $2 billion in Government funding each year.
Predictably, the Opposition has been quick to seize on Swan’s admission that balancing the budget would be difficult by claiming the Government has wasting money.
Liberal leader Tony Abbott said that the Government “has wasted money hand over fist” and that the revenue shortfall was “just an excuse” because it wouldn’t actually affect the next financial year.
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
