$300b debt ceiling to be hit this year
Treasurer Chris Bowen unveiled the government's updated economic statement on Friday, revealing a bleaker outlook for the economy as the mining investment boom peaked, commodity prices fell, the terms of trade declined and the Chinese economy lost steam.
Growth was estimated to slow to 2.5 per cent this financial year, down from the budget forecast of 2.75 per cent, while the unemployment rate was expected to rise to 6.25 per cent in the next two years.
"We are being realistic and laying out that there is a softening that affects both growth and employment," Mr Bowen said.
The sharemarket looked through the budget shortfalls, with stocks posting their 10th straight day of gains.
The Australian dollar was slightly lower, buying US89.11¢.
Economists welcomed the lower growth forecasts for the next two financial years, which they said came closer to market expectations, but said the forward estimates in the outer years were improbable.
"The estimates beyond 2014-15 appear unrealistic, with employment growth too weak to reduce the unemployment rate to 5 per cent," NAB economists said.
They said there were question marks over whether the government would be able to return the budget to surplus by 2016-17 given the "unrealistic economic parameters".
UBS chief economist Scott Haslem criticised the government for its forecasts and missed budget targets, saying it was a "destabilising force for the economy".
"At some point those controlling the fiscal purse need to realise the consistent inability to hit budget figures is increasingly due to flawed revenue forecasts and higher spending decisions, and less to do with a soft economy," he said.
The economic statement revealed a budget deficit blowout of $30.1 billion for the 2013-14 financial year, which was a sharp increase from the previous budget estimate of $18 billion. The 2014-15 deficit estimate was revised to 24 per cent.
The blowouts were not expected to be a threat to Australia's triple-A credit rating, as credit rating agencies could tolerate near-term deficits if there were realistic middle-term efforts to balance the budget, TD Securities' head of Asia-Pacific Research, Annette Beacher, said.
Government revenue was expected to reduce by about $8 billion a year for a four-year total of just over $33 billion.
The resource rent tax was expected to come in $560 million lower. Revenue measures included a tobacco tax increase, a bank deposit levy and a public service efficiency dividend.
Net government debt was set to peak at 13 per cent of gross domestic product, up from the 11.4 per cent peak projected in the budget.
Australia's debt ceiling of $300 billion was forecast to be reached by December, meaning the incoming government would have to legislate to lift the limit.
Frequently Asked Questions about this Article…
The government’s updated economic statement forecast that Australia’s $300 billion debt ceiling is likely to be reached by December of the same year, which would mean the incoming government would need to legislate to lift the limit.
Reaching the $300 billion debt ceiling means the government cannot borrow beyond that statutory limit unless Parliament passes new legislation to increase it. The article says the incoming government would have to legislate to lift the limit.
The economic statement revealed a budget deficit blowout of $30.1 billion for 2013–14, up sharply from the previous budget estimate of $18 billion. The 2014–15 deficit estimate was also revised (the article reports it was revised to 24 per cent).
Government revenue was expected to reduce by about $8 billion a year for a four‑year total of just over $33 billion. The statement flagged a $560 million lower take from the resource rent tax and mentioned revenue measures including a tobacco tax increase, a bank deposit levy and a public service efficiency dividend.
Economists welcomed the lower growth forecasts for the near term but said estimates beyond 2014–15 looked unrealistic. NAB economists said employment growth appeared too weak to reduce the unemployment rate to 5 per cent and questioned whether the government could return to surplus by 2016–17.
According to TD Securities’ head of Asia‑Pacific research Annette Beacher, the blowouts were not expected to threaten Australia’s triple‑A credit rating because rating agencies can tolerate near‑term deficits if there are realistic middle‑term efforts to balance the budget.
The updated statement estimated economic growth would slow to 2.5 per cent in the current financial year (down from a 2.75 per cent forecast) and forecast the unemployment rate to rise to about 6.25 per cent over the next two years.
The sharemarket looked past the budget shortfalls and recorded its 10th straight day of gains, while the Australian dollar was slightly lower, trading around US89.11 cents according to the article.
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