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01 December 2014

Budget deficits will be even larger than predicted, Deloitte Myefo report says

Deficit in 2014-15 alone may be $5bn more than forecast, with worse to come as further savings measures are unlikely to get through Senate

The treasurer Joe Hockey’s prediction of a balanced budget in 2017-18 is “well and truly toast”, says Deloitte Access Economics economist Chris Richardson.

A Deloitte report has predicted bigger budget deficits across the forward estimates in the mid-year economic and fiscal outlook (Myefo).

Richardson, who has long criticised both sides of politics for their handling of the budget, expects the 2014-15 deficit to blow out to $34.7bn, about $5bn more than forecast.

Deficits will be $10bn larger in each of the following three years.

“Red ink will once again be the new black,” Richardson said about the Myefo on Monday.

This is largely the result of another round of revenue write-downs on income tax and company tax, the fall in the iron ore price, as well as increased spending on national security and military action, and Senate deals to secure support for the government’s legislative agenda.

“This is an unwelcome combination of factors for a government hoping for budget repair,” Richardson said.

Most notable was the deal struck with the Palmer United party to scrap the mining tax, which involved postponing the abolition of the income support bonus, the low income superannuation contribution and the schoolkids bonus.

This and additional security costs add up to $2.5bn in 2014-15 and $2.9bn in 2015-16.

Richardson’s forecasts do not include saving measures that are likely to be or are already stuck in the Senate, some of which have very little chance of seeing the light of day, he says.

It was clear that something was wrong with Australia’s political processes when even the Greens opposed sensible fuel tax policy such as restoration of fuel excise indexation, he said.

“If our nation can’t make the easy choices, how are we going to make the hard ones?” Richardson said.

Latest Deloitte Access Economics budget deficit forecasts (v May budget)

  • 2014-15 – $34.7bn ($29.8 bn)
  • 2015-16 – $27.2bn ($17.1bn)
  • 2016-17 –$21.5bn ($10.6bn)
  • 2017-18 – $12.4bn ($2.8bn)