The government has unveiled a net $7 billion worth of spending cuts to shore up its budget and honour its commitment to surplus in 2012-13 in the face of lower revenue from an economy affected by deteriorating global conditions.
The government's Mid-Year Economic and Fiscal Outlook reveals a big blowout in the deficit for the current financial year of $15 billion, reflecting a revenue fall of $4.8 billion and additional spending in response to the Queensland floods, as well as the bringing-forward of expenditure from 2012-13 in order to secure what will be the tiniest of surpluses, $1.5 billion. This year's deficit is now expected to be over $37 billion.
Economic growth has been revised down to 3.25% in 2011-12 and 2012-13. In May, the budget forecast 4% and 3.75%. Unemployment has been revised significantly upward -- up 0.75% to 5.5% this year (reflecting current levels) and up 1% next year to 5.5%, which will feed into lower wage growth.
But inflation has been revised down 0.5 points this year to 2.25% and up 0.25 points next year to 3.25%. Terms of trade are expected to improve by 1.75% this year, rather than fall by 0.25%, but will fall further next year, by 5.25% rather than 3% as forecast in the budget.
The underlying story of the revisions, though, is a $20 billion collapse in revenue over the forward estimates because of lower growth. In response, the government has assembled savings of $11.5 billion, offset by new spending announced as part of the carbon pricing package. The net savings of $6.8 billion include:
- $680 million over four years from the foreshadowed crackdown on living-away-from-home allowance, aimed at ending what the government calls rorting by foreign workers.
- $370 million over four years from adjustments to the Dependent Spouse Tax Offset.
- $2.1 billion from the deferral of several tax reforms by one year, including the introduction of a standard work-related expenses deduction.
- $1.5 billion from a "one-off" additional efficiency dividend on the public service of 2.5% in 2012-13, ostensibly aimed at reducing use of contractors, cutting travel, reducing advertising and overhauling training. Some small agencies will be exempt, including the national cultural institutions, courts, ATSI bodies and ACMA.
- $1.1 billion from changes to superannuation contributions.
- $320 million from ending indexation of the baby bonus.
- $613 million from increases in immigration visa fees.
The savings, however, won't retrieve this year's budget for the government. This time last year, 2011-12 was expected to see a deficit of $12.1 billion. In the intervening 12 months, that has tripled. The fall in revenue has been a major factor, but much of this year's deficit is the result of moving 2012-13 expenditure into this year to preserve the surplus.
It's a pea-and-thimble trick. A deficit is a deficit, whether it's this year or next.