Finance Finance News Hockey delivers ballooning debt and deficit
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Hockey delivers ballooning debt and deficit

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Australia’s budget deficit has blown out by $10.6 billion to $40.4 billion for the current year as a slowing economy, flat wages and tumbling commodity prices slash the government tax take.

The higher deficit, which will account for 2.5 per cent of GDP compared with the earlier estimate of 1.6 per cent, is also being driven by $10.6 billion worth of budget measures blocked or changed by the Senate and a further $33.9 billion worth of measures still awaiting a Senate vote.

The budget decline is not a one-off with next year’s deficit to hit $31.2 billion from a predicted $17.1 billion and the overall blowout between now and 2017/18 totalling $43.7 billion.

 Unemployment to reach 6.5 per cent
• Hockey has some growing up to do: comment

The budget predicted a return to surplus early in 2018/19 while the MYEFO figures predict a surplus a year later in 2019/20.

The predicted surplus in 2024/25  is less than $1 billion meaning that slight changes in outcomes could easily leave the budget in deficit longer than expected.

The end result of all the red ink is a debt blowout that will see the national overdraft hit a peak of $500 million in 2020/21 and fall back only very slightly by 2024/25.

At budget time back in May debt was predicted to peak at about $450 billion in 2019/20 and fall away to around $375 billion by 2024/25.

Debt currently stands at $244 billion.

Treasurer Joe Hockey has delivered the dismal news with the government’s Mid-Year Economic Fiscal Outlook (MYEFO) release that demonstrates a dramatic fiscal decline since the May budget.

Underlying the economic weakness is a calamitous fall in the price of resource exports which has resulted in “the largest fall in the terms of trade since figures were first collected in 1959”, Mr Hockey said.

“That fall was faster than anyone expected,” the Treasurer said.

Iron ore, which delivers 20 per cent of Australia’s export income, has halved in value from $US120 ($A145.5) per tonne at the time of last year’s  budget to $US60 now with each dollar price fall cutting $200 million from the government’s tax take.

Interestingly, while Mr Hockey says the economy is improving with growth running at 2.5 per cent compared to 1.9 per cent a year earlier and employment growth now 15,000 a month compared to 5000 a year ago, he is not expecting a quick resource turnaround with the iron ore price predicted to stay at $US60 for two years.

Unemployment is expected to rise from current levels of 6.3 per cent to 6.5 per cent and growth is expected to grow to about three per cent next year.

The MYEFO did not detail measures the government would take to deal with its collapse in revenues but the Treasurer said on Sunday that he planned to scrap 175 government agencies with potentially thousands of public service jobs to go as a result.

The foreign aid budget will also suffer with Mr Hockey announcing  $3.7 billion in cuts adding to the $7.6  billion cut in the budget.

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