The Acting Prime Minister and Treasurer, Wayne Swan, has announced that the government no longer expects to meet its target of a budget surplus this financial year.
“Dramatically lower tax revenue now makes it unlikely that there will be a surplus in 2012-13,” Swan told a press conference in Canberra today.
A “sledgehammer” has hit government revenues, Swan said. “Unusual events” have weighed heavily on revenues which have been written down by $20 billion. Latest figures show a $3.9 billion revenue slump in the first four months of 2012-13.
Swan said the government has kept making “responsible savings to fill a growing revenue hole”, but that it “would not be responsible to cut harder and deeper to fill a revenue hole at the expense of employment and growth. “I simply couldn’t stand here and say that would be the responsible thing to do. The responsible thing to do is let the automatic stabilisers go to work on the revenue side of the budget.”
Economic fundamentals are strong and the economy is resilient, Swan said. Real GDP remains solid, unemployment is low and inflation is contained. But growth in GDP “is softer than expected”.
Swan said “the course of action I’m talking about today comes to the core of my values and the Labor Party’s values… the responsible thing to do is make a thorough assessment of the budget in the new year.”
Swan said the government had experienced unprecedented events over 5 years and “the aftershocks of those events are still richoceting around the world.”
“Some will focus on the politics of what I’m saying,” Swan said, “but at the end of the day I don’t care about the political outcomes, I care about the economic outcomes.”
Swan said the ratio of spending to GDP was 23.8% in 2012-13, below the average of the Howard government. The ratio will remain around 24% of GDP over the budget’s forward estimates.
Even until recent days, the government has restated its commitment to a budget surplus. Today’s announcement from Swan will bring heavy political criticism of the government from the opposition who will claim it is another broken promise. Economists, however, will be supportive of the retreat.
- Listen to Swan’s press conference (33m)
- Watch Swan (11m)