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 drop in revenue was driven largely by a big decline in company tax receipts. Prime Minister Julia Gillard warned that government revenue would be about $12 billion lower than expected this financial year, prompting economists to revise forecasts.
A fall in revenue weakens the budget outcome and can turn a projected surplus into a deficit. The article notes the shortfall could push fiscal 2013 into a deficit (around $10 billion or more by some estimates), which signals structural vulnerability in the budget and could affect broader economic conditions investors watch, such as government spending, borrowing and confidence.
Stephen Anthony, a former Treasury official, said Howard-era tax cuts are part of the structural issues affecting budget funding. He also noted that then-prime minister Kevin Rudd signed on to the last round of those cuts in 2007, and that successive budget rounds had not yet restored the budget to a sustainable footing.
The article reports a range of revised deficit estimates: Prime Minister Gillard suggested the shortfall could mean about a $10 billion deficit for fiscal 2013 (after previously projecting a $1.1 billion surplus). Westpac’s chief economist Bill Evans said the deficit could be around $15 billion after a delayed $4 billion spectrum sale, while TD Securities’ Annette Beacher estimated it could be closer to $25 billion (about 1.7% of GDP).
ANZ chief economist Warren Hogan warned the weaker budget outcome suggests structural vulnerability and said the government sector needs to adjust to lower terms of trade and a higher dollar—similar to adjustments required across the broader economy. The article highlights calls for the government to put the budget on a more sustainable footing.
Economists overhauled forecasts after the downgrade. The government went from projecting a $1.1 billion surplus to expecting billions less revenue. Analysts then raised deficit expectations, with estimates moving from roughly $10 billion to anywhere between $15 billion and $25 billion depending on assumptions like the timing of asset sales.
Bill Evans from Westpac said a $4 billion sale of spectrum was delayed by a year, which contributed to increasing his estimate of the federal deficit—from around $10 billion to about $15 billion—because that expected revenue boost was pushed out.
The article suggests investors should be aware that lower company tax receipts and structural budget pressures can change fiscal outcomes quickly. Economists warned the government sector, like the broader economy, needs to adjust to lower terms of trade and a higher dollar. Those shifts—along with larger-than-expected deficits—are things investors monitor when assessing economic health and policy risk.
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