The federal government has abandoned a long-held pledge to return its budget to surplus next year, blaming the painfully high dollar and lower export earnings for blowing a massive hole in tax takings.
Treasurer Wayne Swan said today that cutting spending even further to achieve its pledge of a small surplus in the fiscal year to end June 2013 would threaten economic growth and be "self-defeating".
"Dramatically lower tax revenue now makes it unlikely that there will be a surplus in 2012-13," Mr Swan told a news conference.
"At this stage I don't think it would be responsible to cut harder or further in 2012-13 to fill the hole in the tax system, if that puts jobs or growth at risk," he said.
Mr Swan said the economy remained strong but was facing a set of unusual circumstances driven by global developments that had slowed economic growth, lowered commodity prices and kept the Australian dollar stubbornly high.
Usually when prices fall for key Australian commodities such as iron ore and coal, the local currency does as well and provides an offsetting stimulus to the economy.
This time, the Australian dollar has defied all the headwinds and held firm above parity against its US counterpart. On Thursday, it was at $US1.0470, actually higher than when it started 2012 at $US1.0220.
Australia was one of the few developed nations to have forecast a budget surplus for the current year. The government had in October revised down the expected surplus to $1.1 billion, from May's budget forecast of $1.5 billion.
Investors, however, have suspected for some time that a surplus would not be achievable for 2012-13 and there was no sign of selling pressure on government bonds on Mr Swan's statement.
Yields on 10-year government bonds were a shade lower on the day at 3.36 per cent.