The 2013/14 federal budget has blown out by $17 billion since the election and is forecast to be the third largest deficit on record at $47 billion.
In total, the budget has deteriorated by $123 billion over the forward estimates period since August, according to the mid-year economic and fiscal outlook (MYEFO) released on Tuesday.
The MYEFO confirms a $500 million cut to the car industry assistance over four years. But the government says $1.3 billion will remain available to the automotive transformation scheme over eight years.
The previous budget forecast for a $4.2 billion surplus in 2016/17 has been wiped away.
It’s now expected to be a a $17.7 billion deficit.
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Budget deficits are projected in each and every year to 2023/24, unless remedial action is taken.
“This is an unsustainable fiscal position and the government is committed to taking the hard decisions to live within its means,” the update said.
The deterioration since Treasury’s pre-election budget update in August reflect two key factors – a softer economic outlook and steps taken by the Abbott government to address unresolved issues inherited from the former Labor government.
Slower growth had resulted in a $37 billion reduction in tax receipts over the forward estimates.
The economy remains in transition from a mining investment boom to broader sources of growth.
“While the fall in resources investment is expected to be sharper than previously forecast, the recovery in the non-resources sector is expected to be more gradual,” the update said.
Economic growth in 2013/14 was now expected to be below trend at 2.5 per cent.
In 2014/15 growth is likely to remain at 2.5 per cent rather than growing by three per cent as previously forecast.
Unemployment, in the short term, is not expected to be as bad and is now forecast to be at six per cent by mid-2014, rather than 6.25 per cent.
But beyond that period, the jobless rate is expected to be at 6.25 per cent out to 2016/17, rather than improve to five per cent.
The jobless rate currently stands at 5.8 per cent.
Government debt is also expected to be $20 billion worse by the end of 2013/14 at $310 billion and $60 billion higher in 2016/17 in 2016/17.
The budget update says key steps taken by the coalition government to address unresolved issues inherited from Labor include an $8.8 billion grant to the Reserve Bank of Australia to strengthen its capacity to “withstand future shocks”.
The processing of asylum seekers is expected to cost $1.2 billion more than forecast, restoring school funding will cost an extra $1.2 billion, while removing almost 100 previously announced but unlegislated tax and superannuation measures would cost a further $2.9 billion.
