Australian deficits to worsen
Australian treasurer Joe Hockey has abandoned the federal government's commitment to achieve a budget surplus by 2016/17 arguing it would never have been achieved because spending was racing out of control.
Instead the Treasurer has revealed a bleak economic outlook for the economy on the eve of the Christmas period, projecting A$123 billion ($133 billion) worth of deficits over the next four years.
Releasing Australia's Mid-Year Economic and Fiscal Outlook report - a snapshot of the economic picture at the half-way point of the financial year - Hockey revealed a revenue collapse of A$16.8b for the year contributing to a deficit in June 2014 expected to reach A$47b.
Driving the deterioration is a combination of factors from a softer economy, with lower domestic prices and wages, and "significantly lower nominal GDP" driving "a reduction in tax receipts by more than A$37b over the forward estimates".
The "forward estimates" is government-speak for the next four years.
The Treasury forecasts also reveal escalating debt which if left on its current path would see gross debt reach A$667b by 2023/24 - or about 26 per cent of GDP.
Over the current four-year budget period, gross debt is expected to hit A$460b in 2016-17 - a larger number than previously known and the reason behind Hockey's desperation to have the debt ceiling increased to A$500b before he reached agreement with the Greens to abolish the upper limit altogether.
This is all taking place as Australian economic activity begins to shift away from ramped-up mining investment towards non-mining parts of the economy.
The key driver of economic growth in recent years has been resources investment, which has more than quadrupled as a share of GDP over the past decade.
But from 2014-15, resources investment is expected to start "sharply detracting" from growth, with the forecast decline in resources investment now steeper than it was at the 2013 PEFO.
Speaking at the National Press Club in Canberra in Tuesday, Hockey compared his budget task with the time he climbed Mount Kilimanjaro.
"Today, the government is being honest about the fiscal and economic challenge before us," he said.
"Australia is now preparing to climb a challenging fiscal and economic mountain."
When asked when the Coalition would deliver a surplus, Hockey replied: "We want to get back to surplus as soon as we can. I'm not going to make the mistake [former treasurer] Wayne Swan made."
The former Labor government had promised to return the budget to surplus in 2012-13 but was forced to dump that commitment. In his final budget in May this year, Swan went on to commit Labor to achieve a modest surplus in 2016-17.
The Coalition had said it would match or better that commitment.
Hockey said on Tuesday no challenge was insurmountable but argued that, unless the government took "immediate" action, Australia would be in debt for more than a decade.
Australians would have to adjust their expectations about what the government could provide, he said.
"Much of the projected growth in spending is from social programs including welfare, education and health. Spending reform will inevitably required difficult choices about the policies that Australians need now and in the years to come," he said.
Hockey said that Australia had to do everything it could to promote new mining investment.
"It is essential that we get rid of the carbon and mining taxes, which are impediments to new mining investment."
The Treasurer added that the government would fix the budget but would need the entire community to be involved.
"Doing nothing is not an option for Australia."