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Australia's fiscal deficit billions worse than expected, Commonwealth largely to blame

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The combined health of Australia's federal and state budgets has deteriorated significantly since they were published last year.

And the Commonwealth budget accounts for 80 per cent of the deterioration.

New Parliamentary Budget Office figures show Australia's national fiscal deficit – the combined budgets of our federal and state governments – is projected to deteriorate by $34.1 billion more than expected over the next four years.

The PBO says that means the projected deficit has widened from $88 billion to $122.1 billion since all 2015-16 budgets were delivered last year.

And roughly 80 per cent of that is due to the federal budget and its multi-billion dollar fall in Commonwealth revenue.

The PBO document, called National Fiscal Outlook, says falling government revenues are mostly to blame for the multi-billion dollar blowout.


It says Commonwealth revenue has been downwardly revised by a huge $46.4 billion since former Treasurer Joe Hockey's second budget.

It says net capital investment worth $2.5 billion has also pushed the government's fiscal balance further into the red.

Those two figures have been only partially offset by larger-than-expected falls in projected Commonwealth government expenses – thanks to record-low wages growth for government employees – of $15.billion.

That means the fiscal balance of the Commonwealth budget is now projected to be $27.3 billion worse than expected in May last year.

The remaining deterioration in the national fiscal balance reflects a fall in projected state revenue of just $4 billion, and an increase in state expenses ($2.2 billion) and net capital investment ($0.6 billion).

It means Australia's national fiscal deficit is projected to deteriorate by $34.1 billion more than expected over the next four years.

The news comes less than a week after Treasury Secretary John Fraser warned it is getting harder to forecast budget deficits and surpluses, and aggregates like GDP growth, as the global economy becomes more integrated.

Mr Fraser also challenged the claim by Treasurer Scott Morrison that Australia does not have a revenue problem, saying successive falls in tax receipts have been the "main driver" of every budget downgrade since 2014.

"We are not in a crisis. But the budget is rightly a focus of attention," Mr Fraser said last week.

Shadow Treasurer Chris Bowen said Labor has supported more than $30 billion worth of improvements to the Budget bottom-line but it does not want to support legislation that will see low and middle income Australians carrying the burden for Budget sustainability.

"The Government continues to show its true values by pursuing a 15 per cent GST on everything where low and middle income families carry the can," Mr Bowen said.

The PBO document also shows that Australia's national net debt will be more than expected.

The PBO figures show national net debt is projected to rise to $397.6 billion (20.8 per cent of GDP) in 2018-19 compared with $379.4 billion (19.6 per cent of GDP) at the time that 2015-16 budgets were delivered.

It says the rise in debt is mainly due to the cumulative impact of higher projected Commonwealth budget deficits over the period.

"This is partially offset by lower consolidated state debt primarily driven by the proceeds from the long-term leasing of assets in New South Wales," it says.