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Surplus is gone, economists say

Finance Minister Penny Wong.

Finance Minister Penny Wong. Photo: Dallas Kilponen

The Gillard government will not achieve its much-hyped budget surplus this financial year, according to a withering analysis to be published on Monday by Canberra's respected Deloitte Access Economics.

The report says the budget was back in deficit ''before the ink was dry'' on the midyear budget update delivered last month.

Finance Minister Penny Wong declared ''difficult choices'' faced the government on cuts to be made in May.

Ruling out rumours of an early election, she said savings would have to be found to pay for the national disability insurance scheme and the Gonski education plan.

''We will have more to say about those policies before the budget and I think what you will see is, as the Prime Minister said at the Press Club, more of the same, more difficult choices,'' she said. ''There will have to be difficult choices made to ensure that these very important policies, which are both economically as well as socially important, are delivered.''

Following the delivery of the midyear budget update, the government softened its language on achieving the surplus from its earlier unequivocal promise.

Asked to guarantee the surplus would be achieved, Senator Wong said the budget update showed the government was ''on track'' to return to surplus.

Opposition finance spokesman Andrew Robb said Senator Wong was ''clearly rattled'' in ''failing to guarantee'' the budget would return to surplus this year despite previous iron-clad promises.

In the update, known as the Midyear Economic and Fiscal Outlook, Treasurer Wayne Swan was forced to find a further $16.4 billion in savings over the forward estimates to return a slightly smaller than expected $1.1 billion surplus this financial year. The government cut the baby bonus from $5000 to $3000 for second and subsequent children from next year, and placed further restrictions on the private health insurance rebate.

Business was angered by the proposal to change company tax payments to monthly from quarterly, a change that will raise more than $8 billion over the four-year forward estimates.

The major obstacles to returning the budget to surplus are falling commodity prices and economic contraction in Asia.

''We think 'profit taxes' will disappoint and we see the mining tax providing the worst news,'' the Deloitte Access Economics analysis says.

''When China sneezes, the [mining tax] was always going to get pneumonia.''

The analysis says its forecast for revenue from mining and company taxes is $4.7 billion less in this financial year than in the MYEFO.

''Accordingly, and absent further policy changes, we see 2012-13's hoped-for surplus turning into a cash underlying deficit of $4.2 billion,'' it says.

''That is $5.3 billion worse than Treasury forecasts.

''We project 2013-14 to also see deficits - a cash underlying deficit of $5.1 billion.''

Former prime minister Kevin Rudd criticised the Greens on Sunday for seeking a renegotiation of the mining tax when they disagreed on how to price carbon emissions when he was in office.

It was a ''bit opportunistic'' of the Greens, he said.

''We would have had an earlier, more effective solution to critical challenges such as climate change had the Greens … backed an emissions trading scheme back when I was prime minister.

''We would have had avoided two years of rancorous debate and we could have got on with the rest of the agenda.''

18 comments

  • What Labor is not going to deliver on its budget surlpus promise, well we should be getting used to labor Lies, Carbon Tax, No Offshore Processing, Pink Bats, Kevin 07 stabbed by 10 High speed broardband yet to see that. Good work Labor you are working hard towards being the worst government ever

    Commenter
    jake
    Location
    canberra
    Date and time
    November 05, 2012, 8:56AM
    • One of the strongest economies in the world, even Abbott said that in the U.S, a generational change to school infrastructure, low unemployment, low foreign debt etc, etc. gee this is a bad government. You've been listening to Tony Abbott for too long. Have you read the treasury report that the Coalition's tax changes will cost five billion dollars in their first year? The pink batts program was rorted by private enterprise, the very people Abbott places on a pedestal. The carbon tax has been forgotten by the Coalition in parliament because they know that Australians don't care about it any more, it's a non issue so they've moved on to throwing mud over Gillard's time at Slater and Gordon. If you want to see a bad government wait for Abbott to become PM, although there's a good chance he'll be replaced by Turnbull. Gillard is eleven points ahead as preferred PM. This has been an effective minority government which has a vision for the future, like the NBN. Abbott's vision is the 1950s. The only reason the government is desperate for a surplus is because the Coalition will go ballistic if they don't. It doesn't really mean that much. At the moment Australia's debt is ranked 109th out of 132 countries, vey low. This is not a bad government. The government tried to have offshore processing in Malaysia but the Coalition wouldn't allow it. They want the boats to keep coming because they know it will gain them votes.

      Commenter
      Eric Olthwaite
      Location
      Canberra
      Date and time
      November 05, 2012, 9:24AM
    • Our economy is in good shape and does not need a surplus. It was foolish of the Government to promise one, particularly in the present global economic climate. The government is sticking to its pledge for purely political reasons because it knows Abbott and Co will start a great big rant if it doesn't. It could take a lead from the Howard government and call it a 'non-core promise'.

      Commenter
      Canberran
      Location
      Canberra
      Date and time
      November 05, 2012, 10:33AM
    • Eric Olthwaite, the one of the strongest economies in the world statement you made is due to Costello/Howard's contributions, not to the spend-all-revenue happy Labor government. The Socialistic Labor government will eventually run out of money saved.

      "The problem with socialism is that eventually you run out of other people's money." - Margaret Thatcher

      Commenter
      doctrinal
      Location
      Melbourne
      Date and time
      November 05, 2012, 11:09AM
    • The Opposition demand surpluses and yet fight tooth and nail against spending cuts. The hypocrisy is breathtaking. So if Labor does fail to turn a surplus we can only expect confected outrage from the LNP. And if Labor does turn a surplus then it won't be 'honest' (notice how Joe Hockey has changed his rhetoric from 'Labor will never deliver a surplus' to 'Labor will never deliver an 'honest' surplus'? He must be terrified that it could actually happen, then he'll look like an even bigger goose). And on and on it goes... And I'm really sure you could give a rat's about Kevin Rudd. And what did Tony Abbott do to Malcom Turnbull? Pot, meet kettle.

      Commenter
      Whatever...
      Location
      Over It
      Date and time
      November 05, 2012, 11:11AM
    • Eric - the whole problem with the ALP is that they have no vision. Give me a Whitlam, a Hawke, a Keating, who had progressive ideas about economic reform, education, health, and social issues. All the Gillard Government cares about is retaining power and have repeatedly demonstrated that they will do and say anything for political advantage. There were two backfips on climate change, the betrayal of Wilkie on pokie reform, the infamous dealings with Slipper, the pursuit of a surplus for purely political purposes - and now we have them embracing a policy on boat people that was too extreme for John Howard. A Government with any integrity and principle takes a position and works for the implementation of that policy - rather than jumping around to appease minority players. THIS GOVERNMENT HAS NO VISION AND STANDS FOR NOTHING.

      Commenter
      A true believer
      Location
      Canberra
      Date and time
      November 05, 2012, 11:29AM
    • Typical lefty response Eric. Blame Abbott for everything. Scare people with a return to the 1950 (which wasn't so bad a place to be from my memory - much nicer society), ignore the HUGE surplus left by the LNP, zero foreign debt left by the LNP... which had a little bit to do with allowing labor to waste money on pink bats and wonderful voting booths (er, i mean school halls) that have done nothing to make kids smarter. Also, regarding the private sector 'demons' you refer to; there's another part of the world that dislikes those evil capitalists as much as you do - europe. Just got back from a cheap holiday there and a more depressing place I cannot recall. The problem isn't the private sector - it's the banking sector in cahoots with govts the world over to keep printing money to maintain power and oppress individuals. Wouldn't expect a balanced opinion from the rusted on left wing labor voters, so bring on the bias responses.

      Commenter
      capital
      Date and time
      November 05, 2012, 12:48PM
    • I agree, Jake. Pink is a shocking colour for bats. They're much more app[ropriate to remain in their grey.

      Commenter
      speak2us
      Location
      canberra
      Date and time
      November 05, 2012, 1:04PM
  • Does this mean that the government misled us by producing MYEFO ?

    Commenter
    Hacka
    Location
    Canberra
    Date and time
    November 05, 2012, 8:57AM
    • Has Ross Peake evr ha anything positive or balanced to say?

      Commenter
      speak2us
      Location
      canberra
      Date and time
      November 05, 2012, 9:26AM

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