Peter Martin and Mark Kenny February 11, 2015
Treasurer Joe Hockey confesses that the Government's first budget may have been too ambitious and defends his performance amid claims he should be replaced.
So big is the hit to the budget from commodity prices and the measures held up in the Senate it may "never get back to surplus", Treasurer Joe Hockey has told the Coalition party room.
The embattled minister made the claim as an independent assessment of the damage to the budget since May put it at $46 billion to $56 billion.
The total includes only the major measures held up in the Senate, among them the cuts to the Medicare rebate associated with the introduction of a co-payment for bulk billing ($3.5 billion), the cuts to higher education ($4 billion), the cuts to pharmaceutical benefits scheme ($1.3 billion) and the reintroduction of fuel excise indexation ($2.1 billion but now being pursued by administrative means that may themselves be disallowed in the Senate).
Treasurer Joe Hockey and Prime Minister Tony Abbott during Question Time at Parliament House in Canberra on Tuesday. Photo: Alex Ellinghausen
Taken together the funds at risk from the Senate amount to more than $15 billion over the budget projection period.
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The sum at risk from the collapse in the prices of iron ore, coal and natural gas since the December budget update is even bigger, around $30-$40 billion in the view of Deloitte Access Economics.
"The politics don't help, but the tide would be going out for whoever was in office; whether it was Tony, Malcolm, Julie or Bill," Deloitte Access director Chris Richardson said.
Concern is growing in the business community that the Abbott government could crab-walk away from difficult structural reform in favour of spending its way out of political difficulty, making the budget deficit worse and delaying productivity-enhancing reform.
After a day of policy confusion over the $25-plus billion future submarines project, industry sources said the political crisis afflicting Prime Minister Tony Abbott's leadership and associated criticism of Mr Hockey, had fuelled uncertainty.
Mr Abbott has assured colleagues the next budget will not cause the political damage of the first one because it would be "family-friendly" and would put money in the pockets of parents and small businesses.
But one of the nation's top industry bodies, the Australian Industry Group, expressed cautious hope that the resolution of the leadership would enable a return to the "good government" promised by Mr Abbott.
The body's chief executive, Innes Willox, said it was "positive that the government is looking to re-set its agenda" in the wake of the spill crisis.
"More than anything business would welcome two things: a renewed appetite for meaningful reform around tax, workplace relations, infrastructure and skills and secondly, clarity and certainty about those policy directions," he said.
"The Prime Minister has some clear air now to pursue and advocate necessary reform and we can't afford to stumble and we can't let politics stand in the way of good policy and serious debate and reform."
He said the lead-up to the budget was crucial for the development of good policy and necessary reform could be popular when advocated well.
"We need clarity around big decisions including a number where question marks remain such as submarines and the fate of the still unclear proposed tax cuts for bigger businesses."
In December Mr Hockey forecast a 2014-15 budget deficit of $40.4 billion, up from $29.8 billion at the time of the May budget. The collapse in commodity prices since then and the increasing likelihood that a politically weakened prime minister and treasurer will not be able to get contentious measures through the Senate point to a deficit nearer to $50 billion than $40 billion in 2014-15, followed by blowouts of at least $10 billion each of the successive years.
Mr Hockey's May budget had the budget deficit dwindling to $2.8 billion by 2017-18. The figure was revised up to $11.5 billion in the December update. The Deloitte Access calculations suggest that if commodity prices stay where they are it will have to be revised further, up toward $20 billion.
Mr Richardson said: "Even if the Senate said yes to every measure now before it, the budget would remain in much deeper deficit than presently forecast because of the slide in iron ore, coal and gas prices."
"Governments and parliaments get to control how much they spend, but China gets to decides how much Australia earns. Right now China is giving us a pay cut."
Mr Richardson agreed with the treasurer's assessment that the budget may not get back to surplus for the foreseeable future. But he said that wasn't necessarily a bad thing.
"It would be wrong to cut spending just because income is falling," he said. "In the longer term there will have to be an adjustment, but for now the right course is to maintain spending to support the economy."
But the savings presently held up the Senate should pass. "They were never very big savings in the context of the budget, and there's no reason why they shouldn't pass, not necessarily those exact measures, but ones that save similar amounts."
Meanwhile in a rare win for the Treasurer, the Senate on Tuesday passed a savings measure worth $1.35 billion via changes to the research and development tax provisions.
The measure was first proposed by the Gillard government in 2013 but reintroduced as part of Mr Hockey's first budget.
"These changes represent a fair and sensible outcome, providing a concession for small and medium sized companies which are typically more responsive to tax incentives for innovation while at the same time ensuring that important savings in the budget are realised," Mr Hockey said in a statement.
