Government reverses course on road funding despite expected $50 billion budget deficit

Updated

The Federal Government has reversed its decision on around $1 billion in road funding, announcing that it will proceed with the projects the day before a budget update is expected to show this year's deficit will blow out to nearly $50 billion.

The latest budget figures and revenue forecasts will be unveiled in the Mid-Year Economic and Fiscal Outlook (MYEFO) tomorrow.

The road projects in Western Australia, South Australia, New South Wales and Queensland were announced by Labor and were to be paid for out of the mining tax revenue.

The Coalition originally said it would not go ahead with the projects because the tax had not raised enough money.

But Infrastructure Minister Warren Truss says the Government will pay for the projects "through the online budget expenditure".

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Prime Minister Tony Abbott is seeking to sheet home the blame for the growing deficit to the former government, saying the budget update will show the "full extent of Labor's profligacy".

"Aesop's Fables had far more truth in them than Labor's budget forecasts," he said.

"We will get our country back to a responsible surplus - responsible and sustainable surplus - as quickly as we humanly can.

"Tomorrow is about laying out the scale of the task."

The Government says one of the reasons for the increased deficit is an extra $1 billion needed to process asylum seekers offshore.

A $9 billion grant to the Reserve Bank, announced by Treasurer Joe Hockey in October, has also contributed.

But the Opposition says it is "disingenuous" of the Prime Minister to lay the blame with Labor.

It has cited a weekend decision by the Coalition to dump a number of tax changes, worth $3 billion, as evidence the Government should take some responsibility.

Labor's Treasury spokesman Chris Bowen - who was treasurer in the final weeks of the Rudd government - says the "Liberal party spin machine" is in "overdrive".

"I think the Prime Minister is being highly disingenuous in saying that he's not responsible for any of these spending decisions which very clearly are going to have a big impact on the budget deficit being announced tomorrow and will be in large part responsible for the blowout in the deficit," he told The World Today.

Labor's final budget update, released just before the election was called, outlined a $30 billion deficit for 2013-14 and massive revenue write-downs.

The deteriorating budget position appears to have forced the Coalition to abandon its promise for a first-term surplus, and its revised commitment to a surplus in the first year of a second-term Coalition government.

Mr Abbott has today avoided any commitments to a particular time frame for getting the budget back in the black, saying only that the Government would do so "as quickly as we can".

"The best way to get the budget back into surplus is to restore economic growth," he said.

"And my deep regret is that wherever you look, whether it's our campaign to reduce taxes, whether it's our campaign to get red tape reduced, the Labor Party is opposing us."

The Opposition has leapt on the switch.

"The Government has junked the surplus, by all indications in 2016," Mr Bowen said.

"And it's now very clear that their promise to return to surplus was a lie."

Labor welcomes $1 billion allocation for roads

The Opposition has welcomed the Government's change of heart on funding roads projects, worth nearly $1 billion.

"If you have a tax that doesn't raise money and you're spending money from it, then you can't go ahead with those projects unless you can find an alternative way of funding them," Mr Truss told AM.

"Now we're doing it on budget because we know that an important part of recovery from Labor's mess is for us to undertake productive infrastructure."

Labor's spokesman Anthony Albanese says the projects were already funded in the May 2013 budget - regardless of how much tax was paid by mining companies.

"They are projects that will produce a significant economic benefit," he said.

"Let's not forget that the Government has attempted to withdraw this billion dollars in regional infrastructure spending.

"It was only the pressure of the Labor Opposition and of local communities that has ensured that these projects will go ahead."

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

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