By James Glenday and Greg Jennett Monday 1 December 2014
Video: Economist predicts further budget write downs (ABC News)
Photo: Joe Hockey will hand down his MYEFO update later this month (AAP: Alan Porritt)
Related Story: Cuts needed to pay for defence, security spending: Hockey
A senior Government source is warning there will be a big blowout in the federal deficit.
In a grim preview to the Treasurer's Mid-Year Economic and Fiscal Outlook (MYEFO), Deloitte Access Economics is forecasting a 2014-15 deficit of $34.7 billion, $4.9 billion worse than Joe Hockey's most recent forecast of $29.8 billion in May.
But the ABC's AM program has been told the MYEFO figures will be worse.
The iron ore price is likely to be written down to around $60 a tonne, roughly 40 per cent lower than in the budget.
"That would carve about an extra $3 billion a year out of the budget - $2 billion this year and then rising to $3 billion every year there after," Chris Richardson from Deloitte Access Economics said.
His firm was predicting a $35 billion deficit blowout over the next four years compared to Treasury's May figures: -$27 billion in 2015-16, -$21.5 billion in 2016-17 and -$12.4 billion in 2017-18.
He now says it will be closer to $47 billion and thinks the "the budget is burning" through a combination of falling commodity prices, lower tax receipts, slow wage growth and political deadlock over savings measures.
Cheap energy threat to the economy
There will be nasty consequences for the Australian economy from the surge in cheap energy, writes Ian Verrender.
"We have big deficits that are not going to go away unless 'political Australia' manages to reach some compromises around this," he said.
"Both sides of politics did too much off the back of the temporary boom. We need to have a Senate that compromises its way to something better, otherwise this budget problem is not going away."
AM understands there will be no new cuts or tax increases in the mid-year budget update.
"The Abbott Government is determined Australians will have a good Christmas," the senior Government source said.
"[The Labor Party] needs to understand the budget needs repair."
Deloitte's key projections:
- Deficits in each of the next four years
- The "balanced" budget predicted for 2017/18 is "well and truly toast"
- "Profits" tax receipts falling
- Income tax receipts falling
- Good news for states: "Spending taxes" (mainly GST) outperforming May budget forecasts
- Chris Richardson: "Yes, things are bad. And Senate intransigence means they're likely to get worse."
Today marks the start of the final parliamentary sitting week of the year, and the Treasurer is expected to wait until mid-December to hand down his second MYEFO.
His first, in December last year, delivered a $17 billion increase in the 2013-14 deficit, including an almost $9 billion one-off payment to the Reserve Bank of Australia.
Mr Hockey used the 2013 MYEFO and the later Commission of Audit to prepare the ground for cuts and savings in his first budget in May this year.
By the Government's estimates, $28 billion worth of measures from that budget remain blocked in the Senate or have not even been introduced as bills, due to the stated opposition of crucial cross-bench senators.
