THE federal government’s budget surplus commitment has been smashed by the “sledgehammer” of falling corporate tax revenues, exposing Labor to opposition charges of economic mismanagement.
But Treasurer Wayne Swan said he’d rather ditch the surplus than tighten fiscal policy further and risk local jobs and growth.
“What we’ve seen is a sledgehammer hit our revenues, from almost the beginning of the financial crisis thanks to the deepest global economic turmoil since the Great Depression,” he told reporters in Canberra on Thursday.
“Obviously dramatically lower tax revenue now makes it unlikely that there will be a surplus in 2012/13.”
Unions, welfare groups and major investment bank economists backed the decision, saying it was better the government not pursue a surplus while the economy remained vulnerable to lower commodity prices and a high Australian dollar.
But Opposition Leader Tony Abbott castigated Labor, saying it had betrayed another fundamental 2010 election commitment, after its broken promise not to introduce a carbon tax.
“What this demonstrates is you just can’t trust this government to manage the economy and you just can’t trust this government to tell the truth,” Mr Abbott told reporters in Sydney.
Mr Swan said it wouldn’t be responsible to keep plugging revenue holes with spending cuts, adding the situation could be temporary and Treasury would reassess the issue with “fresh eyes” in the new year.
The mid-year budget review forecast a $1.1 billion surplus for 2012/13, but tax receipts in the first four months of the financial year are down $3.9 billion and likely to sink further.
Annual federal tax revenues could be $28 billion lower than in 2004/05, when the Howard coalition government was in power.
But since then, Labor has had to deal with the contractionary impacts of the 2008-2009 global financial crisis, a global recovery and domestic growth around trend.
The lower-than-expected revenue reflects falling commodity prices, a high Australian dollar and continued weakness in the global economy that has hurt the local mining sector and spread across industry.
The budget, so far, is running at a deficit of $12.3 billion, Finance Department figures show.
Mr Swan said it was “too early” to say what the final annual figure could be.
Mr Abbott predicted the government would still look at new spending measures in 2013 to “buy the next election”, due before the end of November.
But Mr Swan said he would continue to exercise fiscal restraint, even in the face of more volatility in the global economy.
“I’m not loosening the purse strings,” he said.
The treasurer said he was willing take a political hit over the surplus decision.
“If the worst thing people say is we got the economics right again but fell short on the politics, I would say, so be it,” he said.
Australian Council of Social Services and ACTU both support bringing the budget back to surplus when the economy is better placed.
JP Morgan chief economist Stephen Walters noted there were “obvious political imperatives”.
“Abandoning the surplus fetish for the current year is the responsible thing to do, but the decision inevitably will leave a large dent in the government’s standing as managers of the economy,” he added. – AAP