Budget deficit figures ‘like a Stephen King novel’: Deloitte
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A pre-budget report issued by Deloitte Access Economics on Monday outlined the growing problems for the Abbott Government, in both an economic and political sense.
Its annual budget monitor – this year titled “The Wheels Come Off” – stated that revenue writedowns from falling iron ore prices and the senate’s refusal to approve policy has left little room for new government spending.
“This has meant that new policy proposals amount to little in additional funding,” it stated.
“Even the likely centrepiece of the coming budget, a family and childcare package, is expected to be financed from the savings realised from scrapping the paid parental leave scheme.”
Deloitte economists projected an underlying cash deficit of $45.9 billion in 2014-15, $5.5 billion worse than what was projected at budget time.
Their report stated that the coming financial year would be even worse, “like it has been written by Stephen King and painted by Edvard Munch”.
“Dull it ain’t,” it stated.
Mining boom ‘threatening to become a budget bust’
Economists have stated that the poster child for Treasurer Joe Hockey’s woes is the falling iron ore price, a sentiment shared by Prime Minister Tony Abbott.
Addressing the Australian Chamber of Commerce and Industry last month, Mr Abbott listed the falling price as one of the government’s main challenges.
“Iron ore prices have fallen from record highs of $180 a tonne three years ago and $120 a tonne at the election time to below $50 a tonne today,” he said.
“Since last year’s budget, collapsing iron ore prices have already driven a cut in government revenue of more than $30 billion over four years.”
Deloitte economists are similarly pessimistic, stating tin their report hat the mining boom was “threatening to become a budget bust”.
“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,” it stated, “We estimate revenues will fall shy of the latest officials estimates by $5.2 billion in 2014-15, and by an ugly $10.8 billion in 2015-16.”
Hockey ‘damaged by perception of unfairness and inability to negotiate’
Iron ore prices aside, economists stated that the politics of negotiating the federal budget were also falling below expectations.
Deloitte economists estimated that senate delays cost the government $1 billion in 2014-15, after the crossbench and opposition pushed against changes to the carbon tax and higher education.
The delays were expected to cost a further $2.3 billion in the coming financial year, but the Australian National University’s John Warhurst said the stalled budget had implications outside the economic sense.
Professor Warhurst told SBS that Treasurer Joe Hockey was damaged not so much by the toughness of his first budget, but rather the perception of unfairness and inability to negotiate.
“I think it reflected poorly on the ability of the Treasurer and the government to negotiate with the crossbench,” he said.
“There’s been a general feeling that while it’s a difficult task to negotiate with such a diverse senate cross bench, that essentially the budget was unfair and that the senate crossbench were not being unreasonable.”
What’s passed and what’s been scrapped from 2014-15
Cuts to public broadcasters, including the axing of Australia Network one year into the ABC’s 10-year contract, forcing more than 400 job losses.Repeal of the carbon tax and mining tax.Immigration overhaul, including $711 million to fund the establishment of the Australian Border Force and a college to train new staff.The establishment of a Green Army, to be funded by $525 million over four years.Cuts to foreign aid, totalling almost $8 billion with no growth in spending until next year.
Planned cuts to legal aid reversed, meaning $25.5 million will remain for frontline legal services.Paid Parental Leave levy axed.Cuts to defence wages reversed, with the government’s offer lifted to two per cent in a deal to cost $217 million over the forward estimates.GP co-payment scrapped after widespread public and political backlash.Cuts to the indexation rate of pensions, which has been blocked by the Senate before being dropped by the government over the weekend.
Controversial changes to higher education are still in limbo, while the government has since announced additional funding for homeless, drug and alcohol services. A $246 million program for nannies has also been outlined.