SYDNEY (AFP) – Australia’s budget deficit is forecast to balloon to Aus$40.4 billion (US$33.2 billion) this financial year as the government struggles with a sharp slump in commodity prices, Treasurer Joe Hockey said Monday.
In the national budget released in May, the government forecast a Aus$29.8 billion deficit for 2014/15, but it revised the figure Monday, citing lower tax revenues and delays in passing legislation.
“Primarily as a result of the collapse in iron ore prices by over 30 per cent and weaker than expected wage growth, tax receipts have been revised down by Aus$31.6 billion,” the government said in its mid-year economic update.
“Delays in passing legislation and negotiations with the Senate have cost the budget more than Aus$10.6 billion over the (four years of) forward estimates, keeping debt and interest payments higher for longer.”
Australia’s economy has enjoyed more than 20 years of economic growth but the resources-driven economy is transitioning out of an unprecedented mining boom.
The conservative government of Prime Minister Tony Abbott slashed spending in its first budget in May, but scores of cost-cutting measures remain stalled in the upper house Senate amid disquiet that they were too harsh.
The government said overall the outlook for real GDP was unchanged and forecast to grow at 2.5 per cent in 2014/15, before increasing to 3.0 per cent in 2015/16.
“However, the changes to the economic outlook since the budget are driven by the sharper than expected fall in the terms of trade, including significant falls in prices of iron ore and coal, and weaker wage growth,” it said.
“Accordingly, nominal GDP growth in 2014/15 is expected to be weaker than forecast at budget, at 1.5 per cent. This would be the weakest nominal GDP growth in a financial year in over 50 years.”
Unemployment, currently at a 12-year high of 6.3 per cent, would also likely climb to 6.5 per cent and remain there until mid-2016, the review said.
The mid-year outlook said that an underlying cash deficit of Aus$40.4 billion was now expected for the 2014/15 financial year, the equivalent of 2.5 per cent of GDP.
It said this deficit would narrow to Aus$11.5 billion by 2017/18 – rather than the Aus$2.8 billion of previous forecasts.
But added it was on track to produce a budget surplus of 0.8 per cent of GDP by 2019/20.
Hockey said the government had made a “good start” on repairing the budget bottom line.
“There is more work to be done but we are on the right track,” he said.
“Rather than never-ending deficits, the budget is on track for a credible surplus. We are being cautious but realistic in relation to our underlying assumptions.”