Tony Abbott will make his budget reply tonight and it is likely the Opposition Leader will have to pass the savings and tax increases in the government’s budget.
The opposition argues the budget is in bad shape and to oppose the savings would look hypocritical.
According to reports in The Australian Financial Review, shadow treasurer Joe Hockey has warned his colleagues the Coalition is likely to support most measures, including the abolition of the Baby Bonus.
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“We may not like them, but we may have to keep them. We can’t save the country from opposition,” Hockey reportedly said.
But the opposition’s budget reply will also have to factor in warnings by economists that the reductions in revenue projections in the budget could fall further.
The budget included a $60 billion revenue write-down, but Paul Bloxham, chief economist at HSBC, told SmartCompany even these figures could be optimistic.
“They look a whole lot more realistic than last year’s budget’s revenue projections, which were quite unrealistic,” he says.
“But it’s fair to say they are quite optimistic numbers. They assume the tax system will deliver significant revenue from growth and, in recent years, we have seen that less tax revenue has been delivered than expected.”
Bloxham says HSBC’s overall macro-economic growth numbers are not too dissimilar to the governments, but the key issue is whether the growth will deliver expected tax revenue.
“I think this is a big issue from the budget and tax reform ought to be very high on the government’s reform agenda,” he says.
“It needs to be a big part of the discussion in the lead-up to the election.”
Bloxham’s warning was echoed by Alan Oster, chief economist at the National Australia Bank.
Oster warned the government’s outlook for nominal gross domestic product is substantially stronger than the bank’s projections, with the government expecting 3¼% in 2012-13 compared NAB’s 2.1%, and 5% in 2013-14 compared to NAB’s 4.2%.
“Overestimating nominal GDP was the reason why revenues were overestimated in recent years – and this is clearly a concern,” he said in a statement.
Treasurer Wayne Swan has hit back at the warnings and criticism of the incorrect revenue forecasts which led to the government dumping its surplus promise.
“We have coped with and responded to what has been a complex, nuanced, changing policy environment,” he said.