A senior Labor figure has broken ranks to call on the federal government to give up on delivering a budget surplus next year.
Government whip Joel Fitzgibbon says Labor should give up on delivering a budget surplus and that the public will understand the U-turn because the global economic picture is still bleak.
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An influential report will argue for the Gillard government to be less rigid on its promised budget surplus.
But Julia Gillard has dismissed Mr Fitzgibbon's views, saying he was not a decision maker in the government.
On Thursday it was revealed that Treasury has reportedly advised the government to dump its commitment to a surplus, warning a slump in nominal economic growth poses a threat to revenue.
Mr Fitzgibbon admitted Labor was ‘‘spooked by opposition taunts’’ on the issue.
‘‘I’d give it up,’’ he told Sky News on Thursday night.
‘‘We’ve got monetary and fiscal budget policy running in different directions.’’
He said there were opportunities to do some good things in the economy.
‘‘The public will understand things are still bad in the international market place,’’ Mr Fitzgibbon said.
‘‘There’s a good reason to run budget deficit in times of need.’’
Asked if his view was widely held among his colleagues, Mr Fitzgibbon said he was not sure.
‘‘It’s important we’re not spooked by the taunts of the opposition,’’ he said.
‘‘There’s a very good case to be made ... you’ve got the backing of some very senior economists now, I think it would be very easy to sell and it would be a good thing for the economy.’’
The Prime Minister told ABC Radio on Friday: "Oh well, Mr Fitzgibbon is entitled to his views but these decisions will be made by me, the Treasurer, the Finance Minister and the cabinet."
"We have released the most recent economic forecast. We don't jump at people's figments of imagination here. We deal with the facts, we deal with the forecasts and I refer you to what we said in that mid-year statement."
Ms Gillard said that as the chief government whip, Mr Fitzgibbon played an organisational, not a policy making role.
The Prime Minister also said that in the May budget, Australians would be given a clear picture of funding strategy.
"They will see from us every cent for Gonski and the National Disability Insurance Scheme over the forward estimates and they'll see more than that. They'll see us detail a long-term funding strategy. We will be absolutely transparent with the Australian people. Budget forecasts properly done, Treasury forecasts, all the rest of it, every dollar, every cent and a long term funding strategy," she said.
Liberal Senator Arthur Sinodinos said the government had ‘‘left their run a bit late and they’re run into a slowing economy’’.
‘‘What’s happening now potentially is they’re adding to deflation that’s going on in the economy particularly the non-mining part,’’ he told Sky News.
Senator Sinodinos said the government now faced a procyclical element because they didn’t put away as much as they should have earlier on when things were good.
He said he didn’t agree with breaking unconditional promises.
He said there was an economic argument for letting the ‘‘automatic stabiliser work’’.
‘‘You’d more likely stay in deficit if the economy really deteriorates,’’ he said.
Judith Ireland and AAP