Prime Minister Kevin Rudd has finally bitten the bullet and conceded
that the budget may have to slip into deficit, after just 12 months in
power.
His ministers have furiously denied the need for a budget
deficit for the past several days, but Rudd returned from his latest
overseas trip on Wednesday with a grim outlook for the world economy
that will further hurt Australia.
“If Australian economic growth
slows further because of a further deepening of the global financial
crisis then it follows that the Australian government revenues will
reduce further,” he told parliament.
“Under those circumstances
it would be responsible to draw further from the surplus and if
necessary to use a temporary deficit to begin investing in our future
infrastructure.”
Opposition Leader Malcolm Turnbull accused the government of seeking a leave pass to abandon fiscal discipline.
“Experience and history tell us that Labor deficits are never temporary”, he told parliament.
“The last Labor deficit lasted for six years.
“It only came to an end with the election of a coalition government.”
Earlier
this month the government in the Mid-Year Economic and Fiscal Outlook
(MYEFO) cut its economic growth forecast for 2008-09 to 2.0 per cent
and slashed its budget surplus prediction to just $5.4 billion from
$21.7 billion.
“What we said at the time of MYEFO, and what the
Treasury observed in MYEFO, was that all the risks were on the downside
and if global conditions did deteriorate further, then that would have
an impact in the future,” Treasurer Wayne Swan told parliament.
“And, of course, things have changed again dramatically in the last few weeks.”
MYEFO showed that the global financial crisis had reduced government revenues in the forward estimates by about $40 billion.
Events in the global economy since then would have had a further impact on those estimates, Swan said.
“The outlook for trade, the outlook for commodity prices, has also taken a turn for the worse again recent weeks.
“So that will have an impact on the budget bottom line, there is no doubt about that.”
The
concession that the budget may have to go into deficit, while a hot
political potato, will come of little surprise to most economists,
given the rapid slowdown in the economy.
Indeed, many have said
it would be a prudent move to take as the government needs to spend to
protect the economy from slipping into recession.
Just last week
Reserve Bank of Australia Governor Glenn Stevens appeared to give the
green light to a deficit, saying prudent borrowing may be needed for
worthwhile public investment.
Rudd returned from the
Asia-Pacific Economic Cooperation leaders’ meeting held in Peru at the
weekend saying the world economy is “deteriorating rapidly”.
“The
impact of the global financial crisis … has grown from a trickle to a
flood. It is now sweeping across the world from China to Chile, from
Germany to Japan,” he said.
He said the crisis was imposing a
personal cost on Australian business and families and would mean tough
times ahead for many people.
“It means Australian families will
make it harder to make ends meet; it means more challenging conditions
for older people whose incomes derive from sharemarket investments.”
