Sharp fall in revenue exposes structural flaws
Part of those structural issues include consequences of the Howard-era tax cuts, said Stephen Anthony, the director of budget and forecasting at Macroeconomics. Mr Anthony is a former Treasury official and has worked in the Department of Finance.
But he said the Gillard government should have been able to put the budget on a "sustainable footing" by now.
"Those tax cuts are playing a significant role, but [then prime minister Kevin] Rudd signed on to the last round of Howard's tax cuts in 2007, so they're officially his tax cuts," Mr Anthony said. "And they haven't managed, over five budget rounds, to put the budget back on to a sustainable footing," he said.
Economists at ANZ have warned that the government sector needed to adjust to the lower terms of trade and a higher dollar.
"The weaker budget outcome this year ... suggests some structural vulnerability in the budget," ANZ chief economist Warren Hogan said. "Just as the broader economy needs to adjust to lower terms of trade and a higher dollar, so too does the government sector." Economists have overhauled forecasts after Prime Minister Julia Gillard on Monday warned government revenue would be billions of dollars less than expected.
She said revenue would be $12 billion lower than expected this financial year, due to a large decline in company tax receipts. The shortfall means the government's projected deficit for fiscal 2013 could be $10 billion. In October last year, the government was projecting a budget surplus of $1.1 billion.
Bill Evans, Westpac chief economist, has revised his expectations slightly upwards for the federal deficit in the past few weeks.
"We were expecting [a budget deficit] around the $10 billion mark, but then we had that announcement of the $4 billion sale of the spectrum being delayed by a year," he said. "So now I think the $15 billion deficit mark looks about right."
The head of Asia Pacific research at TD Securities, Annette Beacher, said she had been expecting a deficit of between $10 billion and $15 billion. But now she believed the deficit would be closer to $25 billion, or 1.7 per cent of gross domestic product.
"Compared with Australia's OECD peers, 1.7 per cent of gross domestic product is but a fraction," Ms Beacher said.
Frequently Asked Questions about this Article…
The article says the sharp fall in revenue was driven mainly by a large decline in company tax receipts. Economists also point to structural factors such as lower terms of trade, a higher Australian dollar and the long‑term impact of Howard‑era tax cuts as contributing to the weaker revenue outcome.
Prime Minister Julia Gillard warned that government revenue would be about $12 billion lower than expected this financial year, largely because of the drop in company tax receipts.
The article reports a range of revised deficit estimates: the shortfall could turn a previously projected surplus into a deficit of around $10 billion for fiscal 2013. Other economists cited higher figures – Westpac’s Bill Evans suggested the deficit could be near $15 billion after a delayed asset sale, while TD Securities’ Annette Beacher thought it might be closer to $25 billion (about 1.7% of GDP).
Stephen Anthony, a former Treasury official, said the Howard‑era tax cuts play a significant role in the structural problems. He noted that the final round of those cuts was signed on in 2007 and argued the government hadn’t managed over several budget rounds to restore the budget to a sustainable footing.
Yes. ANZ chief economist Warren Hogan warned the weaker budget outcome suggests structural vulnerability. He and other economists say the government sector needs to adjust to lower terms of trade and a stronger dollar, much like the broader economy must.
Bill Evans from Westpac said a $4 billion spectrum sale was delayed by a year, which worsened the fiscal picture and helped drive his revised deficit estimate up to about $15 billion.
In October the government was projecting a $1.1 billion surplus. After the revenue warning, projections range from a roughly $10 billion deficit (based on the revenue shortfall) to about $15 billion (Westpac’s view after the delayed sale) and even up to $25 billion (TD Securities’ estimate), showing a significant downward revision from the earlier surplus projection.
The article suggests investors should monitor updates on company tax receipts, official budget revisions and commentary from economists, movements in the terms of trade and the Australian dollar, and progress or delays in major asset sales (like the spectrum sale) because these factors are directly linked to government revenue and deficit outcomes.
Call 1300 880 160
Start a chat
Schedule a call
