Swan empties bag of tricks to save his skinny surplus
THE government needs export prices to stop falling if it is to have any hope of painlessly delivering its promised budget surplus.
A statement of risks published with the budget update shows that if Australia's terms of trade were to fall another 4 per cent (on top of the 8 per cent now forecast), the government would lose an extra $2.8 billion in tax revenue - enough to obliterate what is now a wafer-thin $1.1 billion forecast surplus. It would lose the $2.2 billion surplus expected for the following year as well, suffering a revenue hit that year of $6.7 billion.
The update shows the Australian economy is performing well, with economic growth of 3 per cent expected this year, down only slightly from the 3.25 per cent expected at budget time. Employment is expected to grow and unemployment to stay almost exactly where it is - at 5.5 per cent - through to mid-2014.
But the international economy has turned against Australia sharply. Between the May budget and the first week of September, the spot price of iron ore slid 38 per cent before clawing back two-thirds of the fall in October. The world has suddenly become less generous to Australia, pushing company and mining tax collections $4 billion lower than expected this financial year and $20 billion lower over the next four years.
The biggest trick used to make up the shortfall this year is to grab half a billion dollars of superannuation money that would otherwise be sitting unclaimed in unidentifiable accounts. Until now those funds had to lay unclaimed for five years before the Tax Office grabbed them and parked them in consolidated revenue. That period has been cut to one year, effectively channelling five years of unclaimed monies into one year's budget. Another trick is to "reprofile" government grants, paying in future years what would have been paid this year.
By far the biggest trick over the four-year forecast period is to make companies hand over their tax payments monthly instead of quarterly. Big companies with turnovers of $1 billion will have to comply first (from January 2014), then companies with turnovers of $100 million from January 2015 and companies turning over $20 million from January 2016.
Over four years this will rake in an extra $8.3 billion - accounting for half of the $16.4 billion the Treasurer is saving over four years. Wayne Swan said yesterday no company would pay a single extra dollar in tax as a result of the change, but as each group of companies moves to quarterly payments, it will hand over 14 months of tax in the first 12 months, paying in May and June two-thirds of the payment that would not have been due until July 21.
Not all the measures are fiddles. Some have set up future treasurers for the long term. Mr Swan has freed the budget from the jaws of the private health funds who have had the government rebate a portion of whatever fees they chose to set. From 2014, rebates will increase only in line with the slower-moving consumer price index. The CPI is rising by 1.2 per cent a year. Health insurance premiums have been climbing 5 per cent a year. This move will save $700 million over three years and that's just the start.
Lifting visa charges for people wanting to move to or work in Australia will raise $500 million over four years.
Mr Swan has used just about every trick available to him to to keep the budget in the thinnest of surpluses without pain. Should export prices turn down further, there will be little more he can do.