Budget heading for near $40 billion debt
Joe Hockey will reveal that the Budget is headed for a deficit of nearly $40 billion as prices for the nation's most important exports fall at their fastest in more than half a century.
The Federal Treasurer will pare back plans to cut spending to offset the tumbling revenue, saying the Budget will be an economic "shock absorber" to protect jobs and businesses.
Instead of a $29.8 billion deficit this financial year, with the hope of a surplus in 2018, Mr Hockey will use his mid-year fiscal update to show the Budget is awash in red ink.
This year's deficit will go close to $40 billion, in part because of a $7 billion fall in revenue since the May Budget. In future years, deficits will be up to $15 billion worse than predicted.
Instead of total debt falling to less than $400 billion within a decade, as forecast, the Australian bankcard will be carrying almost half a trillion dollars.
Mr Hockey used the May Budget to link a deep cut in the Budget deficit to improving Australian living standards.
In an echo of former treasurer Wayne Swan, Mr Hockey said that to cut now would hurt the economy. "If we don't use the Budget as a shock absorber for this extraordinary fall in the terms of trade, then Australians will lose jobs and we will lose our prosperity," he said.
The deficit was $48.5 billion last financial year.
It is understood that in the past three weeks the sharp falls in prices for a range of commodities, including oil, have forced a bigger writedown in revenue.
The oil price fall, though helping consumers, ultimately hurts the Budget through lower resource rent taxes and its flow-on effect on overall coal prices.
The relative prices of Australian exports, forecast to fall 6.75 per cent this financial year, were on track to fall substantially more, depriving the Government of tax revenue.
Apart from a bigger deficit and more debt, Mr Hockey said unemployment would be a "tick higher" than the 6.25 per cent forecast for this financial year.
Unemployment rose to 6.3 per cent last month, with some economists predicting it would average 6.5 per cent in 2014-15.
While the economy was tipped to expand 2.5 per cent this year, in line with the May Budget, the Treasurer said it would grow about 3 per cent over "the next few years" - a slower rate than Treasury believed seven months ago.
Mr Hockey signalled the Government was already looking to next year's Budget, saying it would have a focus on families, including a package to help people get back into work.
Shadow treasurer Chris Bowen said Mr Hockey had stolen words directly from Mr Swan, who abandoned his pledge to keep the Budget in surplus because of the threat posed to the economy by deep spending cuts.
"When there were revenue writedowns under the previous government, he would huff and puff and beat his chest, say it was a conspiracy, say it was incompetent, call into question the competency of the treasurer and the Treasury," Mr Bowen said.
"Now he's full of excuses. It's nothing more, nothing less than Hockey's hypocrisy."
