Cigs, public servants and visa charges to pay for Labor’s surplus

Bernard Keane /

The government has unveiled a pre-election economic statement that downgrades growth and revenue forecasts and resumes cutting spending in an effort to meet Labor’s commitment to return to surplus in 2015-16.


The statement anticipates a further downgrade in revenue of $33.3 billion  over forward estimates, driven by a significantly softer economy. Unemployment is expected to peak at 6.25% this financial year and next, 0.5 points higher than forecast in the May budget. Inflation is likely to be slightly higher this year but a little lower next, and GDP is expected to be softer, at just 2.5% in 2013-14, rather than 2.75%, taking growth well below trend. However, the biggest change from the budget point of view is a dramatic downward revision of nominal GDP growth, from 5% in the budget to 3.75% this year and from 5% to 4.5% in 2014-15.


To offset the revenue falls, the government has announced $17.4 billion in spending cuts and tax rises, but only to apply from 2015-16 onward, preferring to let revenue write-downs flow through without commensurate savings this year and 2014-15. As a result, the expected budget deficit for this year —   mooted as late as December to be in surplus — has blown out to $30.1 billion. The deficit for 2012-13 will come in at $18.8 billion, a little better than forecast. However, the return to surplus has been delayed a further year, to 2016-17, with a $4.7 billion deficit now expected in 2015-16.




The key savings and tax increases are:


  • Cumulative 60% increase in the levy on tobacco to raise $5.3 billion;
  • Yet another increase in the public service efficiency dividend to save $1.8 billion;
  • Another rise in visa application charges to generate $540 million over four years;
  • Cuts to the Australian apprenticeship incentives program to raise $240 million; and
  • As expected, a financial stability fund has also been established, funded by a deposit levy, but the scheme will not generate significant revenue until 2015-16.


The government has also left itself a modest election warchest of around $1 billion in measures not yet announced, albeit with some large savings yet to be revealed.


The government has also unveiled the cost of its “PNG Solution”, expected to cost $632 million over four years, including  nearly $200 million in capital to expand Manus Island. In addition, PNG will also receive an additional $420 million in aid over four years, primarily in health, law and order and education.


This story first appeared on Crikey.com.au.

Bernard Keane

Bernard Keane is Crikey’s political editor. Before that he was Crikey’s Canberra press gallery correspondent, covering politics, national security and economics.