Budget surplus of $1.5 billion looks more like an $8 billion deficit

The Treasurer will be a “budget hero” if he can deliver the promised budget surplus of $1.5 billion, but instead Wayne Swan is on track to deliver a deficit of $8 billion, according to economic modelling by Macroeconomics.

Macroeconomics, a consultancy run by the former Treasury modeller Stephen Anthony, finds the 2012-13 budget position $10 billion worse than forecast in the Government’s November update.

The Macroeconomics model projects structural budget deficits for the next decade unless drastic cuts are made in the budget.

Anthony told SmartCompany the Government could still achieve a budget surplus by cutting spending or raising taxes.

“There has been a lot of criticism of the Government as essentially what it is doing is forecasting a surplus it will never be able to deliver, if you take a conservative look at the parameters the Government will deliver a deficit in 2013 and will need to do a little bit more to get a surplus,” says Anthony.

“We think the Government will choose parameters to ensure it gets a surplus but those parameters will be a little optimistic.”

Anthony says there are “a variety of reasons” for the shortfall, including the turmoil in global financial markets which has weighed on tax receipts in Australia and led to a slowing in the domestic economy.

Anthony also points to reduced tax receipts from stock carry forward losses from the financial crisis and mining industry depreciation expenses in place of taxable profits.

“If Wayne Swan can deliver a surplus on budget night that seems to be generated through sensible spending cuts and realistic parameters he should be considered a budget hero,” says Anthony.

“Hopefully those cuts should carry through to future years and keep it in surplus.”

However, Anthony says it is unlikely a surplus will be achieved through sensible spending cuts and realistic parameters.

“No, I don’t think that is the way this government will deliver the surplus,” he says.

Macroeconomic’s modelling contrasts with the figures from the Joint Economic Forecasting Group, which has found the economy can achieve 3.25% growth next year.

According to The Australian the Government is expected to use the Joint Economic Forecasting Groups forecasts as the basis for its return to surplus.

The Joint Economic Forecasting Group includes Treasury, the Reserve Bank, the Australian Bureau of Statistics, Finance and the Prime Minister’s Department.

A spokesman for the Treasurer said “there will be hundreds of stories between now and budget night – many of them will be wrong.” 

“The government doesn’t intend to comment on budget speculation except to say we will continue the strong economic management that has seen our economy become one of the strongest in the advanced world.”