By Nick Mann | 29 April 2013
Australia will have to raise taxes and cut spending more to close an unexpected multi-billion dollar hole in its finances, Prime Minister Julia Gillard has revealed.
A slump in company profits caused by competition from cheap imports and more cost pressure on exporters mean tax revenues for 2012/13 are already $7.5bn down on the amount forecast in October, Gillard said today.
The Treasury now expects revenues for the financial year to the end of June to be $12bn down on expectations.
‘This unusually low revenue, which wasn’t forecast even a few months ago, creates a significant fiscal gap over the Budget period,’ she said, ahead of treasurer Wayne Swan’s budget speech, which is due to be delivered on May 14.
Gillard has ‘expressly determined’ that ‘every reasonable option’ should be considered, she said. ‘The nation and the government must have maximum flexibility to deal with these complex – and rapidly changing – events.’
She added: ‘Because we now are confronted with new facts and far more significant reductions in tax money than was expected, we are going through the process now of making decisions to spend less in some areas than we had hoped, to raise more in revenue in some areas than we had planned.’
The government will not ‘cut to the bone’, and the burden of its decisions would be shared across the Australian population. ‘The more who share the work, the lighter the load for all,’ she explained. ‘Everyone benefits – so everyone contributes.’
But for Australia to achieve its aim of posting budget surpluses, any new spending would have to be met by savings elsewhere, she said.
‘Our fiscal strategy responds to the economic cycle. In the language of economists, we allow the Budget’s automatic stabilisers to do their work as well as actively controlling spending to reach surplus at the right part of the economic cycle,’ she added.
Responding to Gillard’s comments, the leader of the Liberal opposition, Tony Abbott, claimed that the $12bn gap in the government’s finances was further evidence it was over-spending.
‘If you look at the overall situation, sure spending is up, $100bn almost since 2007, and revenue is up $70bn since 2007,’ he said. ‘So, this government doesn't have a revenue problem, it simply has a spending problem.’
He added: ‘You will never see a surplus, you will never see fiscal responsibility, from this government. When this government first went into deficit, they said it was a temporary deficit. Well, we’re coming up for the fifth year of a temporary deficit and there are deficits stretching out as far as the eye can see.’
