Govt forecasts large budget deficits

The federal government's 2013/14 budget deficit forecasted weaker growth and higher unemployment. Source: AAP

THE federal government's 2013/14 budget deficit has ballooned to more than $30 billion.

The unemployment rate is expected to jump above six per cent as the government grapples with a $33 billion revenue writedown.

Treasurer Chris Bowen and Finance Minister Penny Wong on Friday released an update to the May budget which warned of tough global conditions.

A further $33.3 billion has been wiped off revenues over the next four years, forcing Labor into $17.4 billion of "responsible savings".

"The government considers that these savings can be managed while maintaining growth in jobs and the broader economy," the ministers said in a statement.

The budget deficit is now expected to be $30.1 billion in 2013/14 rather than the $18 billion estimated in the May budget.

Bigger deficits are also forecast in the next two years before returning to a budget surplus of $4 billion in 2016/17, which is smaller than the $6.6 billion project two months ago.

"The outlook for world growth has weakened, including in China, and the world price of key commodities has fallen leading to lower forecast terms of trade," the government's statement said.

Economic growth has been cut to 2.5 per cent in 2013/14 from 2.75 per cent, while unemployment is expected to be 6.25 per cent in 2013/14 and 2014/15 rather than 5.75 per cent.

Nominal gross domestic product, which has a major impact on expected tax receipts, is below a 20-year average.

"With the economy currently facing a period of transition and falling terms of trade, cuts in the near term to offset the lower than expected tax receipts and other variations in the budget would put jobs and growth at risk," the statement said.

"The government has made $17.4 billion of responsible savings decisions to provide a pathway to expected surplus in 2016/17."

Savings include a previously announced increase in tobacco excise over the next four years, raising more than $5 billion, and changes to fringe benefit tax arrangements on cars, bringing in $1.8 billion.

The government is providing an extra $99 million in funding to the tax office over four years to address unpaid tax and superannuation, which is expected to improve the budget bottom line by $827 million.

The government is also setting up an insurance fund to gradually build over time to a target size of 0.5 per cent of total banks deposits.

This will add $733 million to the budget over forward estimates.

Additional costs to the budget include $3.8 billion from moving to a emissions trading scheme one year earlier than planned and $1.3 billion in addition asylum seeker management costs.

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