The Abbott government has abandoned its search for budget savings in this year’s budget and will not meet its forecast return to surplus in 2018.
Fairfax reports the government is privately acknowledging collapsing revenue means it is highly unlikely to offer tax cuts at the next federal election.
Prime Minister Tony Abbott said yesterday the government had “bit off more than it can chew” in last year’s budget.
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“We are absolutely committed to ending the intergenerational theft, which is going on with the Commonwealth government, which is spending our children, our grandchildren’s money right now,” he said.
“But we aren’t going to try to fix the budget this year at the expense of people’s household budgets.”
Shane Oliver, head of investment strategy and chief economist at AMP, told SmartCompany the government’s budgetary back track “is no surprise, I think it is just reality”.
“The budget savings haven’t been achieved through the Senate as most of them haven’t been passed,” he says.
Oliver says collapsing commodity prices, in particular iron ore, have also hit the government’s bottom line.
“The question is what measure will be taken in the May budget to fill some of the gaps,” he says.
Oliver says while it is “not essential” that the budget return to surplus by 2018 or by a particular date, it does need to be headed in the right direction.
“If we keep pushing out the surplus year after year our creditors, i.e. bond holders, will get twitchy and may threaten Australia’s AAA credit rating.”
He says the previous government was too slow to bring the budget under control following the global financial crisis while the current government hasn’t been able to come up with policies that are acceptable to Parliament.
“Business was optimistic that this government would get the budget under control and so far that confidence has been misplaced,” Oliver says.
“Compromise needs to be reached otherwise we are going to find ourselves like Greece,” he says.
Oliver hastens to add Australia is still “a long way” from a budgetary crisis like Greece but says “politicians in Canberra need to think long and hard about this”.