Fiscal measures by the Federal Government to return the Budget to surplus in 2012-13 may not be enough to achieve a sustained surplus according to the Australian Chamber of Commerce and Industry (ACCI).
ACCI said the thrust of the savings measures announced by Treasurer, Wayne Swan, represented the right policy for the current environment, but it questioned whether the $6.8 billion in expenditure cuts over the forward estimates period would be sufficient to achieve the government's objective of a sustained surplus.
ACCI Director of Economics and Industry Policy, Greg Evans, said the spending cuts outlined in the government's Mid-Year Economic and Fiscal Outlook (MYEFO) were timely, but they showed Australia was still playing catch up on fiscal policy.
"Developments over the past 12 months have exposed the hazards of forecasting a wafer-thin surplus in an uncertain economic environment. The marginal $3.5 billion or 0.2 per cent of GDP surplus forecast for 2012-13 was too fine to be resilient to even a slight deterioration in economic parameters."
Mr Evans said slower growth and a softening labour market highlighted the exposure of the Australian economy.
"Developments in Europe remain a concern for the health of the global economy and any serious downturn would justify a further reconsideration of fiscal policy settings. However, at the current juncture, the outlook for the Australian economy remains favourable and the government is correct to commit to a 2012-2013 surplus objective."
In announcing a series of initiatives to return the budget to surplus, Mr Swan said the recent instability in the global economy had obvious consequences for revenue with forecast tax receipts written down by more than $20 billion over the forward estimates.
The Treasurer said lower tax receipts and high costs had led to a larger forecast deficit of $37.1 billion for 2011-2012, returning to a small surplus of $1.5 billion in 2012-2013.
Mr Swan said as part of its plan to return the budget to surplus, the government had decided to:
- defer until July 1, 2013, the start date of the standard deduction for work-related expenses;
- defer until July 1, 2013, the start date of the 50% tax discount for interest income;
- defer until July 1, 2013, the start date of the new tax system for managed investment trusts to allow more time for consultation with stakeholders on how best to implement the measure; and
- defer until 2014-2015 the start date of the phase down in interest withholding tax for financial institutions.
Mr Swan said the deferral of the four measures would save $2.1 billion over the forward estimates.
Other measures introduced by the government were reforms to prevent individuals from exploiting the tax exemption for living-away-from-home allowance and benefits – an initiative that would save $683.3 million over the forward estimates – and reforms to the Dependent Spouse Tax Offset.
The offset would be restricted to people with spouses born before July 1, 1952, but would not affect people whose spouse was an invalid or a carer. The measure would save $370 million over the forward estimates.
"Australia would return the budget to surplus ahead of all major advanced economies," according to the Treasurer.
Mr Swan said government net debt would peak at 8.9% of GDP in 2011-12 before falling to 7.7 per cent of GDP in 2014-2015. "This is less than a tenth of the average net debt position of the major advanced economies expected in 2016 of 92.9 per cent of GDP.
"The decisions taken in this MYEFO have not been easy, but are crucial to sustaining confidence in Australia's public finances," Mr Swan said.