Deloitte Access Economics predicts the federal budget next week will reveal a deficit hole more than $5 billion larger than forecast with government revenues shrinking from the collapse in iron ore prices, poor company tax collection and weakening wages growth.
Deloitte estimates an underlying cash deficit of $45.9 billion in 2014-15, $5.5 billion worse than projected and little improvement from the recorded deficit of $48.5 billion in 2013-14.
The numbers are worse than the mid year budget update or MYEFO in December which showed the 2014-15 budget deficit hitting $40.4 billion compared to the $29.8 billion forecast in the May budget.
“The poster child for (treasurer) Joe’s (Hockey) woes is the iron ore price,” says Deloitte Access Economics in its latest Budget Monitor report.
Hockey has repeatedly and consistently called out iron ore prices as a key factor in estimating the budget deficit.
An economic slowdown in China and a rise in global mine output is cutting the legs out from underneath commodity prices.
Treasury’s $US60 a tonne estimate for iron ore has been and gone, hitting a low of $US47, and at a current level of $US56 is still below forecasts.
Deloitte Access Economics says the task to repair the budget is huge.
“Even if you extended the GST to cover fresh food you wouldn’t fill the ongoing budget hole left by the iron ore price falls of the last six months,” says Deloitte Access Economics.
Deloitte Access Economics estimates government revenues will fall below latest official estimates by $5.2 billion in 2014-15 and by $10.8 billion in 2015-16.
Record low wage growth means PAYG revenues have also joined the write downs.
The shortfall in personal taxes versus MYEFO estimates, according to Deloitte Access Economics, rises from just $900 million in 2014-15 to $5.4 billion in 2015-16.
And profits taxes are projected to fall shy of their MYEFO forecasts by $5.1 billion in 2014-15 and $6.5 billion in 2015-16.
Deloitte Access Economics forecasts the cash underlying deficit to drop back to $35.3 billion in 2016-17 and then to $24.1 billion in 2017-18 ($14.5 billion and $12.6 billion worse than Treasury’s last forecasts).
Treasurer Hockey and Prime Minister Tony Abbott have been promising a measured, responsible and fair budget on May 12.
“It’s a budget that will be good for jobs, growth and opportunity,” Abbott said at the weekend. “It will be a budget which is good for confidence because in the end, everyone should be confident in this country.
“Yes, we have our problems but by international standards, we are a blessed land and Australians can be confident that this will be a Budget for jobs, growth and opportunity.”