From the AFR this morning:
The shortfall in forecast budget revenue will be between $60 billion and $80 billion from now to 2016, forcing the Gillard government to dump spending pledges, including $1.8 billion in family assistance.
Next week’s federal budget will reveal the total write-down in tax collections in the current financial year will amount to $17 billion, and rise to more than $20 billion in the next financial year. With senior ministers repeatedly conceding publicly in recent weeks that the fall-off in revenue is not expected to recover “any time soon” – and with the federal Treasury taking an ultra-conservative approach to its forecasts after recent bruising corrections – the likely write-down in revenues over the four budget years from 2013-14 is expected to run to between $60 billion and $80 billion.
…Incorporated in the revenue write-downs will be a $3 billion hit from halving the projected carbon price to around $15 when Australia links to the European scheme in 2015, as revealed by The Australian Financial Review last week.
It will include much weaker revenue from the minerals resource rent tax. Costings from the Parliamentary Budget Office show the MRRT will raise $800 million this financial year compared with the forecast of $2 billion.
$60 billion is at the outer edge of plausible. We are close to $20 billion already for the year ahead. And you would expect Treasury to taper the deficit the further out it projects to support the AAA rating. $20 billion public deficits that taper over the next four years is about as bad as we could run without coming under serious rating agency scrutiny in my view. Whether that proves to be an “ultra-conservative” approach remains to be seen. The reality is that the terms of trade forecasts will need to be pessimistic to make sense in the new normal of Chinese rebalancing and that is not what is currently being projected at BREE or the RBA.
I have posited since the GFC that Australia is in a slow moving current account squeeze that means either the major bank ratings or the sovereign rating will destabilise at some point (of course leading to the destabilisation of the other as well). At this point it looks like the sovereign may be the weaker of the two.
