... So that You may be kept informed

Aust govt says budget can return to surplus in six year

By Kaaren Morrissey
12 May 2009 7:32 PM

CANBERRA, May 12 AAP - The federal budget deficit will expand sharply in 2009/10 to an all-time record as the Australian economy falls into recession, employment soars and tax revenues decline.

The impact of the worst global economic conditions since the Great Depression in the 1930s will hit its peak during the next financial year and have a dampening effect in the out-years.

But Treasury appears optimistic the budget can return to surplus, although not for at least six years - or by 2015/16.

Treasurer Wayne Swan said Australia faced "momentous" challenges following the unwinding of the mining boom, declines in financial markets and falling global demand, which made it a very difficult time to frame a budget.

But the country was in better shape than other advanced economies because it had entered this tough economic cycle with no net Commonwealth government debt, some money saved from the good times and a strong banking system.

Mr Swan told parliament "by steeling ourselves, by pulling together as we always do when we are tested, we will emerge from this global recession stronger and more prosperous than before."

The government has forecast an underlying cash deficit of $57.59 billion for 2009/10 - representing 4.9 per cent of gross domestic product (GDP) - following a deficit of $32.11 billion in 2008/09.

The forecast was in line with financial market expectations and represents a blow out of $22 billion in the budget since the government's last forecast in February, and will likely be the biggest deficit on record.

However, the deficit is then projected to narrow over the next three years to $28.15 billion in 2012/13 and then return to an unspecified surplus in 2015/16.

"In this environment, we sit down and seriously look at our situation and put forward our forecasts with the best information we have," Mr Swan told journalists during the budget lock-up.

Driving the hole in the budget next financial year are declining receipts from corporate tax, the GST, capital gains tax and superannuation related taxes due to weak economic activity and falls in asset prices.

Total government revenue is forecast to fall 1.8 per cent to $290.61 billion in 2009/10, as tax receipts slumps by 2.9 per cent.

Treasury has forecast the economy to contract by 0.5 per cent in 2009/10 as the recession kicks in, following zero growth in 2008/09.

Growth is then expected to return with year average GDP expanding by 2.25 per cent in 2010/11 and a projected 4.5 per cent in 2011/12.

But it will take longer for the jobs market to turn around.

The unemployment rate is expected to rise to 8.25 per cent in 2009/10, before peaking at 8.5 per cent in 2010/11, after touching six per cent this financial year.

But Mr Swan argued the fiscal stimulus packages already announced by the government, further spending on infrastructure and some cost savings in this budget saved jobs that would have been lost.

"Our actions are expected to support up to 210,00 jobs and reduce the peak in the unemployment rate by 1.5 percentage points below the double digit peak it would reach if we listened to those who said we should do nothing," Mr Swan told parliament.

Mr Swan said the government would embark on a program of "responsible" borrowing and ramp up its visits to credit markets to support massive spending of $22 billion on ports, highways, high speed broadband, universities and metropolitan rail infrastructure.

This follows the previous two fiscal stimulus packages totalling $52.4 billion, which also included some infrastructure spending.

The government will also reduce some superannuation concessions for more well off people and lower the health insurance rebate for higher income earners.

AAP klm/mo