With an election in the offing, federal treasurer Wayne Swan wants to minimise the amount of new spending adding to the size of the deficit, says Deloitte Access Economics’ Chris Richardson.
Photo: Jeffrey Chan
Deloitte Access Economics expects Treasurer Wayne Swan’s $1.1 billion budget surplus for 2012-13 will shrivel to a deficit of $10.9 billion, rising to $13 billion in 2013-14, and has warned business tax reform will be a key target for spending cuts.
DAE’s chief economist Chris Richardson says falling income from company profits, the carbon tax and the mining tax means Labor has little room to make big election promises ahead of the September 14 poll, but also points out the government has little reason to push towards a surplus in 2013-14, when a Coalition would be well placed to take the credit.
“The government isn’t planning deep spending cuts aimed at trying to balance the Budget any time soon – this is an election year Budget, after all,” Richardson says. “Instead, it is looking to minimise the amount of new spending adding to the size of the deficit.”
What cuts it will make could be aimed at business. Richardson nominates three business tax targets:
- Cutting of the thin capitalisation safe harbour from 75 per cent to 60 per cent of total assets, reducing the allowed ratio of debt to equity from three to one down to 1.5 to one.
- Changes to accelerated depreciation rules and exploration-related deductions for miners, including the potential for slowing the write-off for tenements and transport assets.
- Abolishing the 40 per cent non-refundable tax offset for companies with turnover greater than $20 million.
- While Richardson argues any cuts will not be as “scary” as some may have feared, he does point to several “poison pills” in the form of the National Disability Insurance Scheme and the Gonski education reforms.
“At best . . . they will fund Gonski and DisabilityCare . . . through the forward estimates out to 2016-17. By that year, these schemes will still be costing rather less than their mature versions will do.
“That will allow the Labor government to get the credit for these policies, while leaving an incoming Coalition government to have to find ways to finance them.”
Looking further out, DAE expects deficits of $5.6 billion in 2014-15 and $5.8 billion in the following year.
Richardson says the revenue shortfall highlighted by Prime Minister Julia Gillard two weeks ago is a long-term problem.
“The $12 billion hole already announced this year may change shape (with bits of the Budget improving and others worsening), but it isn’t going away.”
Of course, for all the doom and gloom, Richardson says it pays to remember the international context.
“The problems we face would be happily swapped by the US, Japan and Europe.”
Overall Budget projections ($ million)
Source: Deloitte Access Economics