Australian Budget Deficit Could Swell To A$47 Bln In 2013-14 - Government

Australia 17122013

The Australian government projects the country's budget deficit to widen to A$47 billion in 2013-14, more than previously forecast, as weaker economic prospects weighed on the country's public finances, according to the mid-year Economic and Fiscal Outlook report published by the Treasury on Tuesday.

This is a substantial deterioration from the A$30.1 billion deficit forecast by the previous Labor government in August. According to the latest projections, Australia is expected to post A$123 billion worth of cumulative deficits over the next four years.

The previous government had forecast a return to surplus by 2016-17. However, the latest report shows a deficit of A$17.7 billion during the period compared to the A$4.2 billion surplus predicted earlier.

In a joint statement with Finance Minister Mathias Cormann, Treasurer Joe Hockey said the budget position has deteriorated by A$68 billion over the forward estimates since the Pre-Election Economic and Fiscal Outlook (PEFO) released on August 13.

"The budget the coalition has inherited is simply unsustainable," Hockey said. The "heavy lifting" of deficit reduction will have to come from spending restraints rather than a raft of new taxes, he noted.

The government projects net debt to reach A$191.5 billion or 12.1 percent of GDP in 2013-14 and then rise to A$280.5 billion or 15.7 percent of GDP in 2016-17.

"Now we must undertake the necessary reforms and help create the right environment for the economy to get back on track and support growth," the Treasurer said, adding that the government should now learn to live within its means.

In the absence of any policy changes, the budget would not return to surplus within the next 10 years, he noted. More than half the deterioration in the budget position is due to the softer economy, Hockey said.

Since the PEFO, there has also been a substantial deterioration in the domestic outlook for both real and nominal GDP growth, the report said.

The economy's transition from resources to non-resources drivers of growth is now forecast to be slower than previously thought, the report noted.

According to the latest projections, the real gross domestic product will rise 2.5 percent in 2014-15, down from the 3 percent growth predicted in August. The GDP growth outlook for 2013-14 was left unchanged at 2.5 percent.

The downward revision reflects a sharper-than-forecast fall in resources investment and a slower recovery in the non-resources sectors, Hockey said.

The government expects the unemployment rate to drift up to 6.25 percent by the June quarter of 2015, unchanged from its previous projection. The jobless rate is seen at 6 percent in 2013-14, down from the 6.25 percent forecast earlier.

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