A predicted $1.1 billion surplus turned into a $19.4 billion deficit on the back of revenue shortfalls.
NAB chief economist Alan Oster described this year’s Budget as “very different from last year’s Budget”, with the rhetoric about the need for a surplus having disappeared. “It’s a Budget that now seems to recognise our economy is weaker,” he said.
“A lot of the spending and saving measures won’t be introduced until the medium to long term and we will still be running a deficit until 2015/2016.”
Improvements include an increase to the Medicare levy to help pay for the National Disability Insurance Scheme, a tightening around corporate profits and welfare reductions, Mr Oster said.
“These things are good in the long run, but this is a Budget that reflects a government responding to economic weakness.”
HSBC chief economist Paul Bloxham said the huge blowout was not a surprise and, for now, affordable. With net debt still very low (peaking at 11.4 per cent of GDP) “there is time to shore up the fiscal footings”.
“This Budget has seen a significant blowout,” Mr Bloxham said. “This should have been no surprise. Last year's estimates were more political rhetoric than reality.
“A milder fiscal contraction is forecast for coming years than in the previous Budget, with the deficit forecast to be $18 billion in 2013/2014. Fiscal policy should be less of a drag this year than last year, which may reduce the need for further RBA cuts.”
Fiscal policy has been looser than had been projected, although still contractionary, he said.
The revenue shortfall reflected that commodity prices had fallen with nominal GDP slowing. Tax revenue had slowed due to a lack of reform and a changing economy, with the carbon tax also falling short of revenue estimates, he added.
Mr Bloxham concluded the Budget may be “significantly less relevant” than most budgets because it is an election year and a change of government in September would change the Budget plans. The election also means a pre-election fiscal update in August, “which may quickly supersede tonight's estimates”, he said.
“More spending promises are also likely to be forthcoming in the lead up to the election,” he added.
