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Government understates budget problems



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Senator ¬ęTim Short Shadow M inister for Finance and Shadow Minister Assisting the Leader on Commonwealth/State Relations

28 July 1991 SMF 56/91

GOVERNMENT UNDERSTATES BUDGET PROBLEMS

The Hawke Government's underlying budget outlook for 1991-92 is far worse than the Government has acknowledged to date, Shadow Minister for Finance, Senator Jim Short told the Ernst and Young Annual Tax Conference at Wollongong yesterday (27 July '91).

Treasurer Kerin has said the starting point deficit for 1991-92 is around $5 billion.

The underlying deficit however is much closer to $10 billion.

The Treasurer has arrived at his $5 billion only after deducting three offsets from the underlying deficit:

- Privatisation proceeds, minimum estimate $1.5 billion - Transfer to the States of responsibility to finance their

maturing debt: $2.3 billion - Treatment of Commonwealth enterprise superannuation fund transfers: approx $1 billion

When they are added back to the Treasurer's $5 billion the

underlying deficit is, conservatively, a massive $9.8 billion.

That $9.8 billion deficit compares with an underlying surplus of $6.9 billion in 1989-90, and $800 million in 1990-91.

The deterioration in the Commonwealth's budgetary position in the two years between its 1989-90 actual outturn and its 1991-92 expectation is therefore a staggering $16.7 billion. Even

between 1990-91 and 1991-92, the negative turnaround is some $10.6 billion.

When the financial position of the States is added in, the Public Sector Borrowing requirement in 1991-92 will be massive, for the second successive year.

In 1990-91, the PSBR was some $10 billion, around 2.5 per cent of GDP. In 1991-92 it seems certain to be a minimum of 4 per

c e n t .

These figures represents a huge drain on our national savings by the Government at a time when Australia's national interest requires the opposite - a contribution to savings by the public sector.

COMMONWEALTH PARLIAMENTARY LIBRARY MICAH

- 2-

The only way this highly damaging situation can be even partially alleviated is for Treasurer Kerin and Finance Minister Willis to take the knife to expenditure in the forthcoming Budget. They have run out of other options. All indications to date are that this will not happen.

This gross fiscal irresponsibility means that real interest rates will continue to be higher than they would otherwise be.

This will inhibit private sector recovery over the next year, particularly in the most depressed States like Victoria.

If private sector recovery does begin to occur, real interest rate will of course rise even faster. Private sector demand for funds will compete with the massive bond selling operation the Government faces as a direct result of its budgetary profligacy.

Canberra

For further information:

Senator Short (03) 387 4177 or

(03) 380 2714