Yesterday’s MYEFO wasn’t so much a revision as a fiscal massacre. It was only in May that the Government was planning on surpluses of $21.7b, $19.7b, $19b and $18.9b for this and the following three years. Those numbers are now $5.4b, $3.6b, $2.6b and $6.7b.

These days $2.6b is the tiniest of parameter adjustments away from a deficit.

Perhaps things will turn as quickly again. Some further rate cuts, a big Christmas for retailers, some unexpected labour market resilience, and the slough of despondence in which the economy appears mired could be left behind. Perhaps Treasury’s now well-established tradition of significantly underestimating revenue will also hold.

At the moment, however, that doesn’t look likely, and in any event the Government can’t bank on it. The more likely outcome is a budget deficit.

The new numbers obliterate — obliterate as in wipe out, destroy, exterminate, put to the sword — most of the Government’s reform agenda for this term. Anything that isn’t revenue-neutral is now highly problematic.

Tax reform, via the Henry Review, might survive given its overall goal is a more efficient tax system rather than tax cuts (the Government “aspires” to further tax cuts but has made no commitments). However, implementation of the more politically difficult recommendations that emerge from the Review will be difficult without the traditional bribes for “losers”, or at least those who squeal the loudest. And the Treasurer confirmed yesterday that the Government remained committed to pensions reform, which will cost billions. Money has to be found somewhere for that. Perhaps we should pass the hat around.

That’s the easy bit. The Government’s infrastructure investment ambitions will have to be put on hold. If we’re still nation-building, we’re talking Liechtenstein, not Australia. Turns out we missed the opportunity to invest the proceeds of the mining boom and we’ll have to wait until the Rise of China and India Part II reaches these shores several years hence.

Funding for education and health will also be directly affected, and not merely through the Funds that were established to channel the budget surplus into those areas. While the Government is continuing to implement its laptops-for-every-student program, the related infrastructure costs are still a bone of contention between the Commonwealth and the States. Moreover, access to additional funding was the basis on which Julia Gillard was going to drive her campaign to force State education bureaucracies to develop and provide performance data for schools.

In fact, bribing the States is the main weapon in Kevin Rudd’s “cooperative Federalism” armoury. Rudd has had enough trouble getting recalcitrants like John Brumby to cooperate even when he’s thrown money at him. Without money, the COAG reform agenda, not merely in health and education but more broadly, will rely on the goodwill and good sense of the states.

Good will and good sense. State Governments. Yep, I know.

Then there’s the effort to close the gap in indigenous health. Current indigenous health and welfare programs are embedded in the Forward Estimates of the FAHCSIA and Health portfolios, so they’re not at risk. But the bulk of the Closing The Gap funding is committed this year. Any additional measures to implement the bipartisan commitment to address the national shame of lower indigenous life expectancy will be expensive, and unfunded.

If the budget does dip into deficit, the Opposition will exploit it for all it’s worth. Yesterday Julie Bishop called the forecasts “a dramatic turnaround in the figures that this Government inherited when it came to office in November. At that time all the economic indicators were heading in the right direction, now they are heading in the wrong direction.”

But, a journalist asked, “the unemployment figures, and the basis of the economic outlook, would you concede though that it is hardly surprising given the current state of the global economy?”

“The Government is very keen,” Bishop replied, “to blame the global financial crisis for everything, but in fact a number of the Government’s policies and the Government’s handling of the economy have made conditions worse in Australia.”

So there you go. It’s all Wayne Swan and Kevin Rudd’s fault.

Steve Fielding topped that, though. Yesterday he called for people to “…buy Australian with their December bonus from the Federal Government’s Economic Security Strategy and boost the local economy.”

Yep, that’s what we need — more protectionism. That should make sure a recession turns into a depression. Or does Fielding think foreigners should go on buying Australian rather than their local goods too?