The government will rely on higher taxes and a handful of high-profile spending cuts to chart a path to fiscal sustainability and provide funding for its totemic education and disability reforms in its 2013-14 budget.

Treasurer Wayne Swan has unveiled an $18 billion deficit for 2013-14, coming on top of a $19.4 billion deficit for this financial year, with no return to a substantial surplus until 2016-17.

The budget boasts an array of savings measures and tax rises, but apart from what is likely to be a controversial dumping of the baby bonus, the government’s “savings” again rely heavily on tax rises or closing tax loopholes rather than genuine hard cuts to spending.

The “savings” are designed to gather momentum toward the end of forward estimates rather than affect the economy straight away, reflecting Treasury’s more gloomy outlook for the economy over 2013-14. Echoing the expectations of the Reserve Bank, Treasury expects growth below trend, at 2.75%, with unemployment higher than previously forecast at 5.75% and inflation lower, at 2.25%. Terms of trade will be slightly softer (down 0.75%) but export growth will still outrun imports at 6.5%.

With this softer economy, there’ll only be $2.15 billion worth of cuts in 2013-14; that builds to nearly $10 billion in 2014-15, then $15.6 billion, then over $16 billion.

However, the nature of the “savings” is revealed in spending forecasts. This table shows predictions on spending across the forward estimates from last year’s budget, compared to this year’s:


2012 budget


2013 budget


2013-14 387.3 (23.7% of GDP) 391.2 (24.5% of GDP)
2014-15 404.9 (23.5%) 409.1 (24.4% )
2015-16 427.3 (23.6) 425 (24%)
2016-17 443.8 (23.8%)

That’s because the bulk of the “savings” are tax rises, with tax forecast to rise as a proportion of GDP a full 1 percentage point between now and 2016-17, driven by the NDIS levy, which is forecast to raise around $12 billion over four years, and a major crackdown on corporate tax avoidance forecast to generate $4.2 billion.

The major talking point from the budget is likely to be the abolition of the baby bonus, to be replaced with a significantly smaller Family Tax Benefit A payment of $2000 for a first child and $1000 for subsequent children. That, along with the already revealed cancellation of FTB-A increases in 2013-14, cuts to the Clean Energy Future package and cuts to health spending form the guts of the government’s savings initiative.

However, there’s a host of small savings initiative spread through the budget papers, right down to forcing public servants into smaller workstations in order to save rental costs.

At the same time, the Treasurer has tried to make a virtue of the government’s low tax to GDP ratio, insisting the budget would be in healthy surplus if he were taxing at the levels bequeathed him by John Howard and Peter Costello.

If this is Labor’s final budget, it will mark Wayne Swan’s Treasurership as a period in which, together with the RBA, the government got the big calls right and took some significant steps toward a more sustainable fiscal policy, but in the end lacked the political capital, or courage, to really address the budget’s long-term needs — even when falling tax revenue demanded it.