Treasurer Scott Morrison has promised to return the federal budget to surplus ‘as soon as possible’, acknowledging that it will take over 5 years. Photo: Aaron Bunch/AAP
The Australian government has revised down its economic growth forecast to 2.5% in its recent Mid-Year Economic and Fiscal Outlook (MYEFO). New Treasurer Scott Morrison says that such projection is “more realistic outlook” for Australia’s economy which is currently in a transitional phase. Scott Morrison’s first MYEFO has outlined that the deficit will increase to $37.4 billion in 2015-16, before being reduced to A$14.2 billion in 2018-19. The government has now been forced to commit to returning the budget to surplus “as soon as possible”, acknowledging that the deficits are expected to continue until 2020-21 with cumulative deficits of $108 billion over the next four years.
Net government debt is also expected to grow to 18.5% of GDP in 2017-18, with gross debt rising to $647 billion by 2025. Facing a revenue loss of almost $34 billion resulting from falling commodity prices, the government has also revised down its iron ore price assumption from US$48 per tone to US$39 per tonne. The tumbling iron ore price is expected to cost the government $7 billion in tax receipts between now and 2017.
The government has revised down its expectation for unemployment to rise, pegging it at 6% for 2016-17. “Recent jobs data suggests even these estimates may be too conservative,” Morrison said in a statement. Health, welfare and aged care have been selectively targeted in a bid to make the savings necessary to reduce the deficit.
The government will also target welfare payments with better income data matching, reduce bulk billing incentives for pathology services and cut back the size of Tony Abbott’s Green Army. Scott Morrison says that the 180 spending measures in the MYEFO would mean the overall impact of policy decisions since the budget would be an improvement of $400 million.
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Cuts to Health unwelcome
Some of the proposed cuts to health have already been criticised by Opposition leader Bill Shorten as an attack on Medicare which Labor opposes. Health groups have come out in opposition to the cuts to Medicare for pathology saying that the decision would become a new barrier that dissuades patients from having important medical tests done.
The Australian Medical Association (AMA) says that these changes are a second attempt by the government to push forward a modified version of its failed GP co-payment. AMA President Professor Brian Owler says that “The axing of the bulk billing incentives for pathology and diagnostic imaging services will increase the health cost burden for Australian families, with the poorest and the sickest being hit the hardest”.
Health Minister Sussan Ley denied the changes would impact patients claiming that competition within the health sector will keep prices low and that the changes would not come into effect until mid-next year giving providers time to accommodate the changes.
What the experts think about the 2015-16 MYEFO
“there is no clear path to surplus (or even minor deficits) in this MYEFO… The government’s Plan B is “innovation”. But leaving taxation system distortions entirely untouched… they are not addressing is stark reality: the failure to transition from the automotive industry shutdown to smart, advanced manufacturing and investment in green jobs.” – Professor Remy Davison, Jean Monnet Chair in Politics and Economics, Monash University
“Australia’s fiscal challenges remain as much about the future as they do about today. An ageing population and a shrinking taxation base will collide over the coming decades and structural policy change will be required to balance the budget to overcome our already significant structural deficit.”
– Ben Phillips, Principal Research Fellow, NATSEM
“We all need to understand that the government budget is just an outsourced version of our own budgets. And we cannot outsource our problem of declining commodity prices and a debt hangover from the crisis – we must pay and pay we will, either today or tomorrow.”
– Ross Guest, Professor of Economics, Griffith University
This article was first published in The Typewriter