Sharp fall in revenue exposes structural flaws

The sharp fall in government revenue highlights the fact that Canberra is facing serious structural issues when it comes to funding the budget, a former Treasury official has warned.

The sharp fall in government revenue highlights the fact that Canberra is facing serious structural issues when it comes to funding the budget, a former Treasury official has warned.

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.

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