Budget figures likened to Stephen King novel as Deloitte predicts $14.1 billion blowout for 2015-2016

Updated

The Federal Government is set to sink $14 billion deeper into deficit next financial year, according to an independent budget analysis.

The Deloitte Access Economics report likened the 2015-16 deficit figure to the work of horror writer Stephen King and Norwegian artist Edvard Munch, who is internationally famous for his tortured artwork The Scream.

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Deloitte said the retreat of the Chinese commodity boom could be a "budget bust" for Australia.

"Our big problem is that there was a magnificent China boom over the last decade," Deloitte Access Economics partner Chris Richardson said.

"That China boom was a budget boom, but increasingly China is slowing.

"Things like iron ore prices are lower than they used to be, the budget boom is turning into a budget bust."

The report also identified the pressures in Australia's domestic political climate, and the resulting gridlock for the Government in the Senate on a range of significant savings measures.

"For our budget to be sustainable, our politics has to be sustainable," Mr Richardson said.

The Federal Government has blamed the Labor Party and the Greens for the gridlock.

"The reasons why there's been a level of difficulty in the Parliament is because both the Labor Party and the Greens have taken a very reckless and destructive approach to budget repair," Finance Minister Mathias Cormann said.

The Coalition also remains locked into some big spending policies that were finalised in healthier budget times, while Prime Minister Tony Abbott flagged significant budget savings through stopping the number of asylum seekers trying to reach Australia.

Mr Abbott reiterated next week's budget would include a plan to return to surplus, but refused to specify a time frame.

"I believe in the marrow of my bones that people will have more reason to be confident after this year's budget than now, because what this year's budget will demonstrate is a credible path back to surplus," Mr Abbott said.

Deloitte has readjusted the budget projections to take into account the latest economic news.

Last year's budget deficit was $48.5 billion.

Deficit expected to be worse than predicted

Deloitte is predicting this year's deficit will be $5.5 billion worse than predicted a year ago, and will be close to $45.9 billion.

The biggest adjustment is forecast for next year.

At some stage spending needs to be cut [and] taxes need to go up to close this circle. Deloitte Access Economics partner, Chris Richardson

In the Mid-year Economic and Fiscal Outlook the Coalition Government projected the deficit would shrink to $31 billion in 2015-16, but Deloitte is now warning of a $14.1 billion blowout.

"2015-16 looks like it has been written by Stephen King and painted by Edvard Munch," the report said.

It adds wage growth is now "limping" as businesses try to revive competitiveness.

"That's set to tear a hole in the budget," the report said.

The Government has promised to deliver a "dull budget" but the report said that was not what the country needed.

"The decisions of the Government in this budget may well be dull but the dollars won't be dull. Anything but, given China's boom winding down," Mr Richardson said.

"At some stage spending needs to be cut [and] taxes need to go up to close this circle."

The Finance Minister said the Federal Government had been working to do this.

"We've been focussing on reducing spending as a share of the economy, we've been focussing on reducing the size of the deficit and on getting ourselves back to surplus as soon as possible," Mr Cormann said.

Budget repair at 'snail's pace'

The report said Australia has been trying to adjust to changing international conditions, but China keeps moving the goal posts back faster than the Government can steer the savings through the Senate.

Considering the figures over three years, between financial year 2013-14 and 2015-16 the deficit would have been reduced by less than $3 billion overall.

"That's budget repair at a snail's pace," the report said.

Mr Richardson said most of the mistakes and most of the dollars over the last decade went into spending, and he said that was where the bulk of the repair task should be.

"On either front – raising taxes or cutting spending – it's really tricky politics," he said.

The Federal Government said it remained focussed on economic reform.

"We absolutely have not lost the appetite at all to put Australia on the strongest possible foundation for the future, and we are pursuing very important economic reform in that regard," Mr Cormann said.

The Prime Minister said the Government expected to save half a billion dollars next year, as a result of stopping the flow of asylum seeker boats.

Since coming to power, the Coalition closed more than a dozen immigration detention centres and reduced the number of charter flights between them.

Mr Abbott said Operation Sovereign Borders had been successful on a number of fronts.

"Not only has there been a human dividend, a very important human benefit from stopping the boats, there's been a budget dividend as well," he said.

"In the budget to be brought down next week, there'll be a half-a-billion-dollar saving as a result of Operation Sovereign Borders."

Deloitte identified potential good news in the fall in the Australian dollar and record low interest rates on federal debt.

Capital gains taxes are also likely to provide extra revenue through the share market and high house prices.

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

First posted