Federal budget: New report predicts $10 billion deficit blowout

Updated

A respected economic forecaster is predicting a federal budget deficit blow out of nearly $10 billion this financial year.

Treasurer Joe Hockey is putting the finishing touches on the mid-year budget which he is likely to release just before Christmas.

The last official budget forecast came during the election campaign when the Treasury said the budget would be in deficit by $30 billion this financial year.

But the Budget Monitor from Deloitte Access Economics says the deficit will be $39.7 billion.

Deloitte Access Economics' Chris Richardson says Mr Hockey's decision to inject $8.8 billion into the central bank will hit this year's bottom line.

"Basically, the Reserve Bank lost reserves in recent years," he said.

"It wants to see them rebuilt; that is a cost to the budget; it's all fallen this year.

"It's a lot of dollars. You might eventually see some of those dollars head back to the Government, but it gives a really rotten budget deficit this year."

Return to surplus should not be the focus

Under the last official budget forecasts, a surplus of $4 billion was due in the 2016-17 financial year but Mr Richardson says that year is more likely to see a small deficit of $0.6 billion.

"The budget is not going to get easily better and that problem is going to be one the Commission of Audit has to face," he said.

Mr Richardson says the focus should not be on the year the budget returns to surplus, but rather on long-term fiscal stability.

He says while the Coalition made claims of a budget emergency during the election campaign, it turns out there's not that much difference between it and Labor.

"The Coalition signed on to 99.5 per cent of the size of government of what Labor was doing anyway," he said.

"That's not unusual; there is less difference between our parties than we think, but it also means budget repair hasn't yet been tackled."

The Coalition has employed a Commission of Audit to come up with measures to stop the budget rot.

Mr Richardson says it is a good start, but it has a big job ahead of it.

He also says it will be a challenged to convince the public of the difficult measures he says will be needed.

"The electorate hasn't been told that the budget needs to be fixed - particularly longer-term and that difficult decisions need to be taken," he said.

"So although the economy's a constraint, the even bigger one is the politics.

"Both sides of politics haven't yet engaged Australia in a discussion around [how] the current living standards are being supported by a budget deficit that will hang around."

Mr Richardson says Australia's economic fortunes are tied to conditions in China and making iron-clad promises about a surplus is a "mug's game".

"Unless you see difficult decisions taken in Canberra and announced relatively soon you actually won't see a surplus in the foreseeable future," he said.

Topics: budget, federal-government, government-and-politics, australia

First posted