On Thursday, Treasurer Wayne Swan was forced to dump plans for a surplus and realign fiscal policy towards “jobs and growth” as collapsing tax revenues caused the budget to miss target estimates.
Cash receipts to the end of October are now 3.9 billion behind budget estimates. With a fragile economy, common-sense has finally prevailed and the Government has decided not to keep cutting expenditure to match falling revenues in a race to the bottom as the Australian economy continues to deteriorate.
Swan indicates there has been a substantial broad based hit to company profits across multiple sectors of our economy.
“Now, the main reason for this is the very substantial hit to profits that Australian companies have experienced in the early months of this financial year, and this isn’t just in resources, it’s right across the board – companies, in particular, being hit by the high Australian dollar,” Swan remarked in his press conference.
“Let’s put this in some perspective: in just four months, we have already seen the full hit to revenue that we were expecting for the whole year. Obviously, dramatically lower tax revenue now makes it unlikely that there will be a surplus in 2012-13,” he said, later describing it as “a sledgehammer hit[ing] our revenues, [..] thanks to the deepest and most sustained period of global economic turmoil since the Great Depression.”
Swan wanted to make it very clear, the government, at this stage is not committed to increasing government expenditure responding to one journalist’s question with “I’m not loosening the purse strings. I want to make it really clear. I’m not loosening the purse strings. What I have decided to do, and I think this is the only responsible course of action, is not to cut to make up for a temporary revenue hole which has emerged of some significance in the last little while.”
Another journalist was quick to question the temporary nature of the revenue hole, “You said just then that it was a temporary hole in the revenue. What gives you the confidence that it’s temporary given I remember that you also said in 2008 we were going to have a temporary deficit and we’ve had a deficit ever since.”
Swan responded with “That’s because the Global Financial Crisis turned into a global recession and went on and on.”
Swan indicates the Government will make a thorough assessment the situation in the New Year.
» Press Conference – October Monthly Financial Statement; Global Economic Downturn; Surplus; Australian Economy. – The Hon Wayne Swan MP, 20th December 2012.