Budget deficits to 2018-19 will blow out to $38bn larger than expected, says a Deloitte Access Economics report, which blames the China slowdown and “gridlock” in the Senate for a cut in revenue.

Deloitte’s budget monitor report by economist Chris Richardson says while 90% of the problem was due to the China’s economic growth slowing down, decisions in the Senate were not helping.



Richardson calculates the Senate is “sitting on” expenditure savings worth $67bn over the next decade.



“China may dominate these dollars but the gridlock in parliament house is also making the task of budget repair harder rather than easier,” Richardson writes in the report.



“The Senate just can’t seem to bring itself to pass spending cuts, meaning the big savings from 2014-15 that are still underpinning some of the figures in this year’s budget simply won’t happen in time for the nation’s fiscal finances to keep to its projected savings timetable.”



The Deloitte Access Economics report comes ahead of the mid year economic and fiscal outlook (Myefo) expected in mid-December. Richardson says the trend of lower revenue continues as “the budget boom of the past decade continues to become a budget bust”.

“The combination of China’s slowdown, another downward lurch in commodity prices and weak wage growth cut total revenues by $4.6bn in 2015-16, with that damage almost doubling to $8bn in 2016,” the report says.



This combines with spending increases which Deloitte calculates at a net $570m higher in 2015-16.

Deloitte paints a bleak long-term budget outlook due to the ageing of the population, the Senate and many existing government programs becoming more expensive. These include the National Disability Insurance Scheme (NDIS), Medicare, school and hospital funding, pensions and defence.

He said the report included “incredibly generous assumptions” which were that the government’s savings measures would eventually pass the Senate – one year down the track.

“Budget repair isn’t urgent,” the report concludes. “We have time. But both sides of politics strikingly mismanaged our national finances through the boom years and the repair task keeps getting harder.”

Deloitte’s prescription is more spending cuts to fund the NDIS and to repair the budget as well as an increase in the “overall tax take” and a change in the tax mix. The report recommends an increase in the GST with compensation, state land taxes to replace stamp duties and “fixing” superannuation tax concessions.

Labor’s shadow treasurer, Chris Bowen, said the Deloitte’s forecast of a $38bn in additional deficit came on top of the doubling of the budget deficit over the past year.

He said the government had also walked away from its offset rule – which said that for every new spending commitment, a corresponding saving would be found – when it came to the innovation statement.

“The Coalition promised to turbocharge the economy and have made every commitment possible when it comes to delivering a surplus,” Bowen said.

“What they’ve delivered is the opposite with blow-out in deficits and growth forecasts that continue to be slashed in every Budget update.”

Bowen says Labor was never going to approve spending cuts that came about as a result of the Coalition’s broken promises.

“Labor was never going to be a rubber stamp for billions of dollars in broken Liberal party promises,” Bowen said.

“The fact is though, Labor has supported some government spending measures. We have also put forward our own fair budget measures, including abolishing Direct Action, the multinational tax package, winding back high income super tax concessions, and the tobacco excise measures.

“As Deloitte points out, in line with the BCA, that budget reform should take place over the medium term and not in a way that damages the economy.”

The independent senator Nick Xenophon rejected the suggestion that the Senate should have passed the deep cuts imposed in the 2014 budget. He issued an invitation to the “bean counters” at Deloitte’s Access Economics to come to his community meetings to see “how tough some people are doing it”.

“I’m looking forward to the team of Deloitte’s running for public office at the next election,” Xenophon said.

“I would also invite them to lunch at Yianni’s on Hindley and then come to community meeting and talk to people losing their jobs in auto sector in SA and single mothers with three kids.”



“I would also ask them to engage on how government works to end waste and work better in delivery of services.”