Budget update brings deficit blowout and hits to health and aged care

Health, welfare compliance and aged care have been targeted for savings in a budget update that forecasts deficits bigger than forecast in May and pushes out further the return to surplus.

In some 180 savings measures more than offsetting extra spending since the May budget, there will be another welfare compliance crackdown, while people with welfare and family assistance debts will face an interest charge, encouraging them to pay back their debt.

Changes to the medicare benefits schedule for diagnostic imaging and pathology bulk-billing incentives will save more than $650 million over four years, while savings in aged care are to yield more than $500 million in savings. Former Prime Minister Tony Abbott’s “green army” is being capped, saving $317.5 million.

The deficit this financial year is now forecast to be $37.4 billion, compared with $35.1 billion in the May budget. By 2018-19 the deficit is projected to be $14.2 billion; at budget time it was projected at $6.9 billion by then.

Across the four year budget period the total estimate for the deficit has blown out by $26 billion.

“The budget repair strategy is designed to deliver budget surpluses building to at least 1% of GDP as soon as possible consistent with the medium term fiscal strategy,” the Mid-Year Economic and Fiscal Outlook (MYEFO) says.

A return to surplus is delayed by a year since the budget – it is now put at 2020-21.

With a sluggish economy, growth for this financial year has been revised down by 0.25% to 2.5%, with growth next financial year trimmed from 3.25% to 2.75%. The assumed pace of real GDP growth in the five years from 2017-18 has been revised down to 3% from the 3.5% assumed in the 2014-15 budget.

Treasurer Scott Morrison and Finance Minister Mathias Cormann described the growth forecast as a “more realistic outlook”, which “should be seen as a statement of confidence”.

Revenue write downs total almost $34 billion caused by falling commodity prices, declining terms of trade, weaker global growth and the reduction in the domestic growth figures. The assumption for iron ore prices has been reduced from US$48 per tonne in the 2015 budget to US$39 per tonne.

Government payments as a share of GDP are estimated at 25.9%, falling to 25.3% in 2018-19; real growth in outlays have been reduced from 2% to 1.8% a year over the budget period.

The savings push has added more than $400 million in net saving to the bottom line. Morrison said that gross savings of more than $10 billion had been made.

The budget is optimistic about employment, with the jobs outlook revised upwards and the unemployment rate expected to peak at a lower level than previously forecast. The unemployment forecast for this financial year is now 6%, compared with the budget’s 6.5%, remaining at about 6% in the June quarters of 2016 and 2017.

Government debt is projected to peak at $647 billion by 2025.

Morrison likened the budget’s journey to a family’s car trip. “As we go into this summer season and Christmas season, many Australians will jump in the car and they’ll head off to their favourite holiday destination. They know where they’re going and they know how to get there. There are no short cuts, there may be some delays on the way with road works or things like this, plenty of people in the back seat … saying ‘Are we there yet?’

“The path back to budget balance is similar to that. We need to take a safe and careful route and one does not put at risk our jobs and growth.”

Opposition leader Bill Shorten said the Liberal government was on “a road to nowhere”. He said the harshest cuts hit people least able to protect themselves – including cancer patients.

Shadow treasurer Chris Bowen accused Morrison of being “mendacious” in his claim about containing spending growth. The government was only reducing this growth after earlier doubling it, Bowen said.

He said the report card on the budget was “a great big fail”.

“Deficit reduction and returning to surplus was at the heart of this government,” Bowen said.

Michelle Grattan does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond the academic appointment above.

Michelle Grattan, Professorial Fellow, University of Canberra

This article was originally published on The Conversation. Read the original article.