Australia, September 27: The Rudd government will reveal an improvement of up to $10 billion in the past year’s budget bottom line this week, while the increasing strength of the economy is forcing Treasury economists to greatly upgrade their forecasts for the next three years.
The improvement could slash $75bn from the government’s debt and bring the budget back into surplus by 2014-15, a year earlier than expected, according to market economists, The Australian reports.
The government has vowed to bank any improvement in its tax revenue, so the strengthening of the economy will not add to a warchest for the election expected next year.
Wayne Swan is expected to release the final outcome for the 2008-09 budget tomorrow, or at the latest on Wednesday, while the mid-year review of the budget numbers is likely to be released, along with the next inter-generational report on the long-term budget outlook, in November.
“We have done better than anticipated at budget time,” the Treasurer said yesterday.
“But of course the mid-year forecast will come towards the end of the year. I don’t intend to pre-empt that.”
Mr Swan said the improved economic outlook – since May when the 2008-09 budget was forecast to be $32bn in deficit – reflected the government’s stimulus spending, which had helped to support employment and business.
“It will be a good thing if our forecasts in the future show that unemployment won’t necessarily go as high as forecast some months ago,” he said.
The Coalition is expected to use the improved economic performance to argue that the government’s stimulus measures should be curtailed.
Opposition Treasury spokesman Joe Hockey said yesterday Australia had survived the crisis for many reasons other than the stimulus package, including large interest rate cuts and the fact the economy was already in good shape when the downturn hit.
“We have said the government is spending too much money, given all the other factors at play,” Mr Hockey told the ABC.
“And what’s more, the money it is spending is not being spent well. It’s being spent recklessly.”
The International Monetary Fund upgraded its world economic forecasts on the weekend for the second time since April, and will release new figures for the Australian economy on Thursday.
The fund said its new forecast that world growth would hit 3 per cent next year depended on all governments implementing their announced stimulus measures. The fund’s world growth forecast in April was only 1.9 per cent.
However, Coalition senators are expected to use today’s hearing of the Senate economics committee to press Reserve Bank governor Glenn Stevens on whether the continued stimulus spending in the face of an economic recovery could force interest rates to rise more quickly.
Treasury secretary Ken Henry, who was also scheduled to appear before the committee today, has postponed his appearance for two weeks as the committee wants a Treasury submission first.
However, he is expected to argue that the success of the government’s additional spending in boosting the economy is no reason to abandon it.
The IMF’s forecast for the Australian economy is likely to be sharply upgraded. In April, the IMF was tipping a 1.4 per cent contraction for Australia’s GDP this year and only 0.6 per cent growth next year.
This was much more pessimistic than Treasury, which forecast a 0.5 per cent contraction in 2009-10 followed by 2.25 per cent growth the following year.
Westpac chief economist Bill Evans expects the budget update will show growth at 1.3 per cent this year and 3.7 per cent in 2010-11.
“This helps the budget significantly,” Mr Evans said. “On a ‘no policy change’ basis, you’d now be forecasting a surplus by 2014-15, which is a year earlier than you were expecting before.
Alternatively, the government could be less draconian in its policy prescriptions and still achieve a surplus in 2015-16.”
The May budget contained a commitment Mr Swan has since repeated, that while the budget remains in deficit, any new spending will have to be funded by finding savings elsewhere.
The government has two major areas of policy reform – healthcare and universities – which will require funding before the next election.
Mr Swan has said the government remains committed to keeping real spending growth to 2 per cent a year once the economy returns to its long-term trend growth rate of about 3 per cent.
Mr Evans said the improved economic outlook meant the government’s peak debt was likely to be about $225bn rather than the $300bn the budget forecast would be hit by 2012-13.
The reduced debt will mean lower interest payments for the government.
—Agencies