Budget surplus unlikely in coming years

TREASURER Wayne Swan continues to talk down the prospects of Australia returning to a budget surplus anytime soon.

The flow-on effects of the global financial crisis have taken a sledgehammer to taxation revenues, as has the high Australia dollar and falling commodity prices.

"As a result, we're seeing further hits to revenues and it's clear this will be felt right across the forwards," Mr Swan told a business luncheon in Sydney this week.

The treasurer could reveal deficits for each of the four years in the government's forward estimates when Mr Swan delivers his sixth budget on May 14.

If so, Labor could be setting the scene for the longest run of budget deficits - a total of nine - since 1970/71.

Up until late last year, Mr Swan was confident a $1 billion-plus surplus for 2012/13 was on the cards.

But he's since dropped that forecast and now economists are tipping a budget black hole of up to $20 billion for this financial year.

The latest government monthly financial statement released in March seems to back up that expectation.

It revealed an underlying cash deficit of $26.8 billion for the seven months to January 31 - around $5 billion worse than the predictions contained in Treasury's mid-year budget update.

Shadow treasurer Joe Hockey said Labor was walking away from any commitment to a budget surplus in future years.

"They have no commitment at all to living within your means and ultimately Australian taxpayers are going to pay the price," he said.

If it wins government in September, the coalition has committed to delivering sustainable budget surpluses by cutting government debt and spending.

But Mr Hockey can't say when that might be.

Over the rest of this decade, the Australian dollar is likely to remain around parity with the US currency and continue to hurt export earnings.

This outlook was underlined this week when the local dollar hit a 28-year high on the trade weighted index - an economic indicator that measures the strength of a country's exchange rate against its peers.

Since reaching parity in November 2010, the currency has averaged $US1.03 - well up on the average of 81.3 US cents between 2003 and the onset of the GFC in September 2008.

And to top it off, the Australia dollar has appreciated 30 per cent against the Japanese yen in the past six months.

Global mining giant BHP Billiton estimates every one US cent appreciation in the Australia dollar cuts its earnings by $120 million - so cent-movements mean big dollars in potential company tax revenues.

The strong dollar was a factor in General Motors Holden axing 500 local jobs this week.

And a looming worry for Mr Swan is forecasts for a fall in the prices of Australia's main mineral exports, which are priced in US dollars.

It's no wonder confidence in the economy fell in April, according the consumer survey published by Westpac this week.

When respondents considered economic conditions over the next 12 months, their confidence fell 4.5 per cent. Over five years, it fell 8.3 per cent.

Business is also struggling, with sector activity hitting its weakest level in nearly four years, according to a National Australia Bank survey.

So when official labour force data on Thursday showed the unemployment rate rose to 5.6 per cent - its worst reading since November 2009 - Mr Hockey wasn't surprised.

"This reflects what we've been hearing on the ground ... for the last few months," he said.

The unemployment rate also overshot Treasury's forecast for a rate of 5.5 per cent by June 2013.

One way to boost confidence - and economic growth - is for the Reserve Bank of Australia to cut interest rates.

The central bank last cut its cash interest rate in December, to three per cent.

This week, RBA assistant governor Christopher Kent said economic growth was expected to be a bit below the trend rate of about 3.25 per cent this year, before improving gradually next year.

The likelihood of no bumper growth in Australia for the foreseeable future makes the budget task much harder, and whoever is treasurer after September 15 will have their job cut out for them.

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