Federal Government to announce reduction in $32b deficit

The Federal Government is set to announce an upgrade in the budget this week that will add $10 billion to its bottom line and could bring it out of deficit one year earlier than expected in 2014-15.

As reported in The Australian, the Government could reduce its debt by up to $75 billion as a result of the upgrade, with the final outcome of the 2008-09 budget likely to be released by Wednesday with a mid-year review due in November.

“We have done better than anticipated at budget time,” treasurer Wayne Swan said yesterday. “But of course, the mid-year forecast will come towards the end of the year. I don’t intend to pre-empt that.”

He also said the upgrades to the outlook are due to the Government’s stimulus measures, which have helped unemployment levels remain relatively low.

“It will be a good thing if our forecasts in the future show that unemployment won’t necessarily go as high as forecast some months ago,” he said.

However, the Opposition has attacked the Government for relying too much on the stimulus for helping the economy, with treasury spokesman Joe Hockey yesterday saying the stimulus isn’t the only reason for economic success.

“We have said the Government is spending too much money, given all the other factors at play,” Hockey told the ABC. “And what’s more, the money it is spending is not being spent well. It’s being spent recklessly.”

That position was supported today in a Senate economics committee by Reserve Bank governor Glenn Stevens, who said the Government should roll back its stimulus programs as the point at which they were most effective has passed.

“The peak effect of these measures on the rate of growth of demand has probably already passed,” Stevens said. “The extent of support will tend to tail off further over the next year.”

The criticism comes after the International Monetary Fund praised the Rudd Government for its stimulus measures, with the organisation expecting to upgrade its forecasts for Australia’s economic growth.

Currently, the IMF expects GDP to contract by 1.4% this year, with only 0.6% growth next year. The Government expects a 0.5% decline in GDP for 2009-10, with 2.25% growth during 2010-11.

But Westpac chief economist Bill Evans expects growth of 1.3% during 2010, followed by 3.7% during 2010-11, while UBS senior economist George Tharenou expects the budget upgrade to show a $10 billion improvement from May, leading to an earlier than expected departure from budget deficits for the Government.