The budget deficit has been blowing out ever since since the last official mid year forecasts in December with government revenues shrinking and spending rising, according to analysis by Deloitte Access Economics.
The forecaster, in its budget monitor report, says the underlying cash deficit will be about $41.7 billion for 2015-16, a substantial $4.3 billion worse than projected at MYEFO (Mid-Year Economic and Fiscal Outlook).
Last year’s deficit was $37.9 billion.
Treasurer Scott Morrison is due to bring down his first budget on Tuesday next week with the challenge of keeping an electorate happy as the nation heads towards an election, likely on July 2.
“The budget boom of the past decade continues to become a budget bust,” says Chris Richardson, partner at Deloitte Access Economics.
“The combination of China’s slowdown, still rotten commodity prices and weak wage growth have cut overall revenues by $4.1 billion in 2015-16, and the damage remains large, with a further shortfall of $3.5 billion in 2016-17.”
The problem is about both spending and revenue.
On the revenue side, major miners, which account for a sixth of company tax in an average year, have taken huge profit hits. BHP, the world’s biggest miner, in February posted a massive half year loss of $US5.669 billion, its first in 16 years, and cut its dividend.
Overall profit taxes are forecast to fall $4.7 billion below the latest official estimates for 2015-16. However, better news on iron ore prices cuts that shortfall to $2.3 billion next year.
“The share market has been battered since MYEFO, so super (superannuation) taxes have similarly suffered,” says Richardson.
And despite the tail end of a massive boom in housing prices, those same share market troubles pose problems the capital gains tax collection.
“China is still stripping dollars from national income,” says Richardson.
“And spending is up too versus official forecasts –- there’s been money thrown at the states and others to keep them sweet (or less sour) in an election year, plus the usual cost of ‘do nothing’ Senate delays.
“Weak wages and inflation mean the economy is generating some savings on spending which will partially offset the costs of continued Senate blockages.
“But the bottom line is that deficits from here through to 2018-19 now look like weighing in at $129 billion — that’s $21 billion worse than the official forecasts in December’s MYEFO had them.”