Friday, March 25, 2011

Natural disasters hit budget forecasts By David Uren and Joe Kelly

 The government's budget planning has been rocked by a collapse in revenue collection in January, as floods and weaker economic conditions hit tax receipts.

 Wayne Swan said yesterday the government's books in January highlighted "the challenging circumstances we face in putting together a budget that's been so affected by natural disasters both at home and abroad".  
 The government's total revenue of $25 billion in January was $2bn, or 8 per cent, lower than had been budgeted. Such a shortfall could add another $12bn to this year's deficit, without action to curtail spending.
 The budget deficit this year was already expected to hit $41.5bn, but Treasury had been counting on a revival in revenue to close the gap to $12.3bn in the 2011-12 budget before the return to a $3.1bn surplus in 2012-13.
 The Treasurer's office said that, with tax payments arriving in unpredictable bunches, Treasury's advice was that the January shortfall reflected the influence of the floods.
 "Our strict fiscal rules have us on track for surplus in 2012-13, but there is no doubt the task has been made a lot harder due to the impact these natural disasters will have on the bottom line come budget night," Mr Swan said.
 Although the Treasurer has blamed the natural disasters, it is likely that the budget shortfall also reflects the generally weaker state of the economy.
 Commsec chief economist Craig James said: "It's not just the floods, but also the fact that the Reserve Bank adopted tight monetary policy settings late in 2010, serving to slow momentum in the economy."
 Lower-than-expected company tax payments were the main reason for the revenue shortfall. The full effect of the natural disasters on company taxes will not be felt until the 2011-12 financial year. Part of the revenue shortfall is lower than expected GST receipts, reflecting weaker consumer spending, with the effect on the commonwealth's budget offset by lower grants to the states.
 Mr James said it would take an extraordinary recovery to meet this year's budget deficit target of $41.1bn, with the deficit in the first seven months of the financial year reaching $38.5bn.
 He noted that budget revenues were only 0.1 per cent higher than they were a year ago, while the government's spending was 3.5 per cent higher.
 The government was yesterday forced to deny it would use the planned carbon tax to assist its return to surplus following unconfirmed reports based on a private meeting between 15 resource companies and Climate Change Minister Greg Combet and Resources Minister Martin Ferguson.
 Fairfax Radio reported that a source close to the meeting had said businesses were told revenue from the carbon tax would help the government deliver on its commitment of a budget surplus by 2012-13 and put pressure on the opposition.
 The government quickly denied the accusation in a joint statement from Mr Ferguson and Mr Combet and reaffirmed that every dollar raised would go to assisting households, industry and climate change programs.


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