Prime Minister Tony Abbott has promised this budget will be a “dull” affair but a respected economist believes it will be anything but.
Chris Richardson from Deloitte Access Economics has described his own forecast for the 2015/16 budget deficit as a cross between a horror story written by Stephen King and The Scream, painted by Edvard Munch.
While a sharp drop in the iron ore price has been the focus of an expected revenue downgrade, low income tax through slow wage growth will “tear a new hole in the heart of the budget”, Mr Richardson said in his budget monitor released on Monday.
“Add in the rising cost of Senate gridlock and we see an underlying cash deficit stuck at $45.3 billion in 2015/16.”
This would be a huge $14.1 billion deterioration in the deficit forecast in the mid-year budget review released in December.
For this financial year (2014/15), Mr Richardson is predicting a budget deficit of $45.9 billion, also $5.5 billion worse than previously forecast.
All up, Mr Richardson is forecasting a whopping $47 billion blow-out in the budget estimates to 2017/18.
Treasurer Joe Hockey’s May 12 budget will also include forecasts for 2018/19.
“We still see deficits as far as the eye can see, with the repair task getting harder both because of economics – commodity prices and wages – and because of politics,” he says.
“If Australia’s politicians can’t craft some compromises, then better budgets will be even further away.”
Mr Richardson says the budget problems started a number of years ago when the impact of China’s demand for resources was strong.
“The dumbness of what we were doing was buried under a comforting layer of surpluses,” he says.
He points to the permanent promises that have built up over the past decade, including family payments and baby bonuses, compensation for carbon and mining taxes, as well as a series of personal tax cuts.
DELOITTE ACCESS ECONOMICS BUDGET FORECASTS:
(year, amount, increase since mid-year budget review)
2014/15, -$45.9 bln, $5.5 bln
2015/16, -$45.3 bln, $14.1 bln
2016/17, -$35.3 bln, $14.5 bln
2017/18, -$24.1 bln, $12.6 bln