MYEFO: Budget deficit increases to $37b as Government releases economic update

Updated

Health, welfare and aged care are facing combined cuts of more than $3.7 billion as the Federal Government faces down a deficit stretching beyond the end of the decade.

Main points Deficit: $37.4b in 2015-16, $33.7b in 2016-17, $23b in 2017-18, $14.2b in 2018-19

Iron ore price: Revised down from US $48 per tonne to US $39 per tonne

GDP: Downgraded to 2.5 per cent, growing to 2.75 per cent in 2016-17





But counter-terror measures and border protection duties gained millions of dollars in additional funding as part of the Mid-Year Economic and Fiscal Outlook (MYEFO), released today.

Savings $2b over 4 years by cracking down on welfare compliance

$650m over 4 years by removing bulk billing incentives for pathology services & reducing the incentive for MRI services

$595m over 4 years from health workforce programs

$472m over 3 years from Aged Care funding

$441m over 4 years by means testing the Child Care subsidy for families earning more than $250,000

The federal budget deficit has increased to $37.4 billion, with a $2.3 billion deterioration in the forecast deficit for 2015-16 since the budget in May.

The Government is also predicting deficits to be a total of $23.8 billion worse over the three years from 2016-17 than first estimated in the budget.

Treasurer Scott Morrison said the journey to budget balance needed to be "safe and careful" with the expected date to return to surplus pushed back another year to 2020-21.

Using the metaphor of the Christmas car trip, he said he expected a lot of Australians to ask "are we there yet?".

"We need to take a safe and careful route and one does not put at risk our jobs and growth," he said.

"We are not going to take detours or short cuts. We are not going to put the safety of the passengers at risk. Those passengers are growth and jobs of Australians."

The Government has committed over $3.5 billion in extra spending since the May budget, including the $1.1 billion innovation package, $909 million to re-settle an extra 12,000 Syrian refugees, $1.1 billion in extra roads funding and $621 million for new pharmaceutical subsidies.

The Government said it had "more than offset" the extra spending with new savings measures.

Targeting more people who incorrectly claim welfare payments will save $2 billion over four years to 2018-19.

A range of changes to bulk billing incentives for pathology services, diagnostic imaging and MRI services will save $650 million over four years.

Health workforce programs will be cut by $595m over four years.

The Government will cut $472 million from aged care services over three years by "better aligning" funding claimed by providers to the level of care actually provided.

The previously announced change to the childcare subsidy, to reduce the payment for families earning more than $250,000 will contribute to savings of $441 million over four years.

90pc of budget measures passed: Cormann

Finance Minister Mathias Cormann said he and Mr Morrison were expecting some changes to be made to planned savings through negotiations with the Senate.

Senator Cormann said the Government had already made "significant progress" in passing budget measures through the Upper House.

He said nearly 90 per cent of all the budget measures had been passed.

"We are putting the plan on the table for all to see and we will continue to work with the Senate to give effect to it," he said.

MYEFO downgrades the Federal Treasury's predictions for economic growth from a gross domestic product (GDP) figure of 2.75 per cent in 2015-16, to 2.5 per cent.

The Government said it had adopted more "realistic" growth outcomes, and that combined with weaker global growth, declining terms of trade and falling commodity prices had contributed to revenue write downs of $34 billion.

The May budget forecasts were based on an iron ore price of $US48 per tonne, but that has been downgraded to $US39 per tonne.

Unemployment is expected to rise slightly from the November result of 5.8 per cent, peaking at 6 per cent in 2015-16 and remaining steady.

The Government had previously aimed to return the budget to balance in 2019-20, but has revised that target to one year later.

The Department of Immigration and Border Protection was one of the winners out of MYEFO, gaining more than $1 billion in additional funding over four years.

"This Government is taking us in a path of cuts now which is not what Australia needs at the moment." Opposition Leader Bill Shorten

The total additional funding of $1.09 billion includes $499.7 million to manage the legacy caseload of asylum seekers.

An additional $342.2 million has been allocated over two years for refugee resettlement arrangements for asylum seekers in offshore centres, as well as $213.3 million over four years for the management of the onshore centres.

Counter-terror measures have also been allocated additional funding, with the Department of Public Prosecutions and the Attorney-General's Department to get an extra $20 million for counter-terrorism prosecutions.

A total of $52.5 million is being cut from arts funding, while Green Army projects are to be capped at 500 a year, saving $317.5 million from the program.

The Government has also increased the funding allocated for the establishment of the National Wind Farm Commissioner and the Independent Scientific Committee on Wind Turbines, up $600,000 over four years to a total of $2.5 million.

'On a road to nowhere'

Opposition Leader Bill Shorten adopted Mr Morrison's car-trip analogy in his MYEFO response, stating the budget was "on a road to nowhere with no prospect of improving".

"Today, we hear that the deficit's up, that indeed wage growth is stalling just above inflation, that we are seeing confidence down, we are seeing capital expenditure down," he said.

"So this Government is taking us in a path of cuts now which is not what Australia needs at the moment."

Shadow Treasurer Chris Bowen described the figures as a "great big failure", citing the increased deficit.

"This update shows that Malcolm Turnbull and Scott Morrison presided over a budget deficit blowing out at the rate of $120 million a day since the last budget," he said.

"The deficit's blown out by $26 billion over the last seven months ... if they have no plan to return to balance, what is the point of the Turnbull Government?"

Mr Bowen said the Opposition was concerned over cuts to health expenditure, as well as the crackdown on welfare compliance.

"The Government had alternatives today — they have could have adopted Labor's plan for multi-national tax, higher income superannuation, tobacco," he said.

"They would have received bipartisan support, yet they have chosen yet again to simply preside over blowouts in the budget deficit while attacking those who can least afford it the most."

Topics: government-and-politics, budget, federal-government, business-economics-and-finance, australia

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