Treasurer Joe Hockey says all options are on the table to repair the budget, but Labor has warned of “brutal cuts” in May.
The federal budget could remain in deficit for the next decade and drive national debt to two-thirds of a trillion dollars, the government warns.
Treasurer Joe Hockey painted a bleak picture when he handed down the mid-year budget review on Tuesday, telling Australians they would need to adjust their expectations.
Mr Hockey was making the case for broad-based savings, which will come in next year’s budget, against a backdrop of weaker economic growth and higher unemployment for a number of years.
“Returning the budget to sustainable surpluses will not be achieved by piecemeal savings here and there,” Mr Hockey told the National Press Club in Canberra.
“All options are on the table.”
The 2013/14 federal budget has blown out by $17 billion since before the election and is forecast to be the third largest deficit on record at $47 billion.
There is no immediate sign the budget will return to surplus, after the previous forecast for a $4.2 billion surplus in 2016/17 was wiped out.
Instead, there will be a $17.7 billion deficit in that financial year.
Budget deficits are also projected for every year to 2023/24 unless action is taken, the government said.
The last surplus, of $19.7 billion, was in 2007/08.
If the government’s forecasts stand, by 2023/24 the federal budget will have been in deficit for 16 years.
“Australians will now have to adjust their expectations of what government can sustainably provide, otherwise our nation’s prosperity and our people’s quality of life will be at risk,” Mr Hockey said.
Shadow treasurer Chris Bowen said Mr Hockey should have outlined a path back to surplus.
“Joe Hockey is softening up the Australian people,” Mr Bowen said.
“He is preparing the ground for deep and brutal cuts come budget time.”
The budget deterioration reflects two key factors: a softer economic outlook and steps taken by the coalition to address unresolved issues inherited from the former Labor government, such as the $8.8 billion recapitalisation of the Reserve Bank of Australia.
Slower growth has resulted in a $37 billion reduction in tax receipts over the forward estimates and the economy remains in transition from a mining investment boom to broader sources of growth.
The economy is likely to expand by a sub-trend 2.5 per cent in 2013/14 and into 2014/15. Trend growth is usually about 3.25 per cent.
Unemployment is forecast to be six per cent by mid-2014, but rising to 6.25 per cent in 2016/17. The jobless rate is now 5.8 per cent.
Government debt is also expected to rise, from $320 billion this year to $460 billion by 2016/17, and a staggering $667 billion by 2023/24.
Australian Chamber of Commerce and Industry chief executive Peter Anderson said the figures were alarming.
“The only true solution to this alarming cycle of debt and deficit is for the government to provide the private sector with more economic freedom and a fairer deal to create the wealth required to get us out of this budget hole,” he said.