The federal government will need to factor in dramatically falling personal income tax revenues to next week’s budget, according to Deloitte Access Economics’ annual budget monitor, released today.
Deloitte has estimated Treasurer Joe Hockey will reveal an underlying budget deficit of $45.9 billion for the 2014-15 financial year, putting the budget bottom line as $5.5 billion worse off than projected this time last year.
But the picture doesn’t get much better, with Deloitte estimating the underlying cash deficit to be “stuck” at $45.3 billion for the 2015-16 financial year, which it says “looks like it has been written by Stephen King and painted by Edvard Munch” according to Deloitte economist Chris Richardson.
“China continues to carve chunks out of Canberra, leading to rampant revenue shortfalls,” Richardson said.
“But the biggest ‘new bad news’ on bucks is in PAYG. Wage growth jumped ahead of productivity gains during the boom but it is now only limping along as businesses try to claw back their competitiveness.”
“That’s set to tear a new hole in the heart of the budget.”
Alongside the billions that will potentially be written off as a result of the continued falls in the price of iron ore, Deloitte is estimating an income tax write-down of $900 million this financial year, which is projected to balloon out to $5.4 billion in 2015-16.
The release of the Deloitte report coincides with a survey from Australian Industry Group, which reveals cutting the company tax rate is at the top of the budget wish-list of Ai Group members.
Three-quarters of Ai Group members said reducing the corporate tax rate was among their top three priorities for this year’s budget, followed by 66% who nominated increased spending on infrastructure in their top three and 55% who nominated achieving “budget balance over the next five years”.
Stronger financial incentives for industry investment in research and development and innovation also ranked highly, with 54% of Ai Group members placing it in their top three priorities, while 37% rank increased spending on training and apprentices among their key concerns.
Peter Strong, executive director of the Council of Small Business of Australia, told SmartCompany the priorities among COSBOA members are for budget measures that would help improve cashflow and industry confidence, including an investment allowance.
“A few of my members have said the focus on the budget deficit or surplus is over the top,” Strong said.
“We are going to come out of it eventually, and if we don’t, then the whole world will be in trouble, not just us.”
Strong says for small business, the plan on how to get out of deficit is more important than the current size of the deficit.
He believes moves to reinstate accelerated depreciation measures for small business are a step in the right direction, and would like to see the funding currently allocated to training organisations and employment service organisations to be better targeted.
“Funds are being wasted,” said Strong, who says industry associations could play a much bigger role in allocating how the funds are spent.
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