Peter Martin, Tim Colebatch April 19, 2013
Joe Hockey. Photo: Stefan Postles The Coalition has abandoned its plan to quickly return the budget to surplus, citing deteriorating government finances, while a sharp slump in revenue has raised fears in business circles that the Gillard government will shut down a range of business tax breaks in the May budget.
Shadow treasurer Joe Hockey told a forum organised by The Australian Financial Review on Thursday it was important to be prudent. ''We are not going to go down the path of austerity simply to bring the budget back to surplus because it would end up being a temporary surplus, depending on how big the deficit is that we inherit.''
His remarks are a departure from a commitment he made on the ABC's AM program in January.
''Our commitment is emphatic,'' he said then. ''Based on the numbers published today we will deliver a surplus in our first year and every year after that.''
Opposition Leader Tony Abbott backed him up, saying that afternoon: ''Based on the published figures we believe we can deliver surpluses in each year of the first term of a Coalition government.''
Meanwhile, Treasurer Wayne Swan has warned major economies against leaning toward ''mindless austerity'' to repair their balance sheets, as Labor prepares for its own tough budget choices.
Mr Swan is in Washington this week for the spring round of top level Group of 20 industrialised nations and International Monetary Fund meetings.
In an economic note published on Friday, he said governments around the world, including Australia, faced difficult choices due to weaker world growth, following the 2008-2009 global financial crisis.
Mr Swan reiterated jobs and growth would be at the forefront of any decisions.
''To cut to the bone – as our political opponents advocate – would drive our economy into the ground and send unemployment skywards,'' he said.
''We now see countries with very weak economies falling into the trap of mindless austerity, when they should be trying to provide support to activity in the short term while improving fiscal sustainability in the medium term.''
Updated figures released by Finance Minister Penny Wong show that in the three months to February, tax revenue fell 0.5 per cent year on year. The budget had forecast annual growth of 10.8 per cent.
Company tax was projected to grow 8.9 per cent, but with the financial year two-thirds gone, it instead rose just 0.8 per cent. The mining and petroleum resource rent taxes were projected to raise 390 per cent more revenue this year, but in fact they have raised just 30 per cent more.
By the end of February, the budget deficit for 2012-13 was already $24 billion, with tax revenue on track to end up a massive $17.5 billion short of the budget estimate of $343 billion. Most of the shortfall is in company tax and the mining tax.
Senior officials say mining companies will be able to reduce their tax payments for years ahead as they write off their record $285 billion investments over the past decade. The weakness of the rest of the economy has also punched a hole in company tax revenue.
As this implies a much lower revenue base for 2013-14, tax experts and business groups are worried that the May 14 budget will now seize on a range of options originally floated in a report last year as potential offsets for a cut in company tax.
The cut to company tax rates was abandoned after business failed to agree on how to offset the revenue loss. But in February the government slashed research and development incentives for big business, which had been one of the options, and there is widespread speculation that it will now go ahead with the others.
Paul Stacey, tax counsel for the Institute of Chartered Accountants, says it is ''a racing certainty'' that the budget will tighten the ''thin capitalisation'' rules to hit multinationals seen as using excessively high debt (usually to their parent company) to reduce their tax bills.
