The budget bottom line is looking bleak, and a weaker economy isn’t going to help the situation.
The 2013/14 federal budget deficit has risen to $47 billion, from a $30 billion deficit forecast just before the September election, according to the mid-year economic and fiscal outlook (MYEFO).
The year-average gross domestic product (GDP) for 2014/15 is expected to grow by 2.5 per cent, compared to three per cent in the pre-election fiscal outlook.
Unemployment is expected to rise to six per cent in fiscal 2013/14 and then move to 6.25 per cent in the following three years.
RBC Capital Markets senior economist Su-Lin Ong said the revised economic forecasts make for sobering reading.
“Growth is expected to remain well below trend for the next two years, with cuts to nominal GDP capturing the further likely decline in the terms of trade,” she said.
“The increasing drag on activity as the mining capital expenditure cycle matures and turns down is evident in the further downward revision to domestic demand.
“It shows an economy really struggling with the challenges of growth rotation towards the non-mining sectors.”.
The Treasury’s forecasts are based on there being no change to government policy but that could change in the May budget.
HSBC chief economist Paul Bloxham said the deterioration in the deficit over the next few years with no surplus on the forecast horizon is because of weaker economic growth and increased government spending.
“Overall, Australia’s fiscal position is not that bad, although it should be much better and plans need to be made to put it onto a more sustainable medium-term footing,” he said.
“Care will need to be taken to put Australia on a path to medium-term fiscal balance, without unduly tightening policy at a time when growth is still below trend.
“The significant delay in firming up the government’s medium-term plans could also be somewhat costly, as it leaves households and businesses uncertain about what the government will do.”