The federal budget deficit is projected to expand by another $24.3bn over the next four years, as Australia’s record-low wages growth and a shortfall in company tax blow a hole in the income tax take.
It means the Turnbull government’s hopes of returning the budget to balance in 2020-21 have become even slimmer, raising the spectre of a major credit ratings downgrade.
Deloitte Access Economics’s latest Budget Monitor, released on Monday, shows the commonwealth government’s fortunes are tied uncomfortably to rising global commodity prices and the unlikely prospect of the return of inflation.
It shows the recent rise in global commodity prices, particularly the price of coal, will not be enough to stop the deficit expanding by billions.
Chris Richardson, Deloitte director, said when making his budget calculations he also assumed, generously, that the Senate passes all savings measures by mid-2017, that state governments accept the Turnbull government’s savings measures that have been made at their expense, and that Australia’s economy finally reflates.
He said the 2016-17 budget assumed the nation’s finances would repair themselves over coming years thanks to a projected doubling of the pace of nominal GDP growth, which is very unlikely when the world is stuck with “lowflation”.
He said these assumptions were unrealistic, so the projected budget deficit could end up being even larger than his predicted $24.3bn blowout by 2019-20.
“That speaks to the underlying vulnerability of official budget forecasts,” he said.
“They assume the next four years are a turnaround versus the last four: so they depend on a lot of things going right.”
The shadow treasurer, Chris Bowen, and the shadow minister for finance, Jim Chalmers, have jumped on the news, saying yet another budget deterioration will jeopardise Australia’s AAA credit rating.
“With the ratings agencies already expressing concern about the budget position, any further blowout of this nature will put our hard-earned AAA credit rating at even more danger of being lost,” they said in a joint statement.
“Already Malcolm Turnbull and Scott Morrison have delivered a budget deficit for 2015-16 eight times bigger than they inherited, the 2016-17 deficit has tripled and net debt for this year has blown out by more than $100bn on their watch.
“It is time for this government to take responsibility for the state of the books and stop pointing the finger at everyone else for their failings.”
But Morrison said Labor’s approach to budget repair could not be taken seriously.
“Any claims made by Labor about risks to the AAA credit rating need to recognise that Labor’s approach at the last election was to worsen the budget deficit over the forward estimates and increase taxes that would slow economic growth,” he said.
“Labor’s resort to cynical populism is also no panacea to repairing the budget. It should make the right decisions to support the government’s savings measures and contribute to the national interest.
“The goal of our national economic plan outlined in the budget is to lift what Australians are earning from their wages and their businesses, not tax them more, as Labor propose to do. That is why our enterprise tax plan is so important.
“You can’t expect businesses to earn and invest in providing more hours of work per week for their employees when you are demanding that they keep paying higher taxes,” he said.
