Next week's budget bottom line will be more than $19 billion worse than forecast in November, meaning much larger deficits this financial year and next, an independent forecaster says.
But the government will still scrape home with a tiny surplus in 2012/13 of $710 million, Deloitte Access Economics says in its Budget Monitor released on Thursday.
It expects the underlying deficit will be $51.4 billion in 2010/11, just shy of the record $54.7 billion shortfall in 2009/10, and about $9.9 billion worse than predicted in the mid-year budget
News that makes sense
Your trusted source for staying up-to-date with the world around you. Get free daily news updates and analysis, straight to your inbox.
review.
For 2011/12, Deloitte expects a deficit of $21.7 billion, instead of the $12.3 billion previously estimated by Treasury.
Deloitte director Chris Richardson says the budget remains a "wounded beast" still haunted by the lingering losses generated by the global financial crisis.
This has been compounded by the impact of this summer's natural disasters on government revenues, as well as the relentless rise of the Australian dollar.
"Although it seems like there has never been a better backdrop for the budget, with the world showering money on us and unemployment already below 5.0 per cent and headed lower yet, the news is bad," he says.
But as bad as the budget news is now, Mr Richardson says, it will be better thereafter.
"Almost regardless of the decisions announced on budget night, whether there will be a surplus in 2012/13 is more likely to be a function of China than of courageous decisions, or lack of them," he says.
"The big moves in coal and iron ore prices, in particular, have added tremendously to revenues over the past decade."
He expects commodity prices will hold up enough to just get the budget in surplus by $710 million in 2012/13, before achieving a more comfortable surplus in 2013/14 of $8.1 billion.
The government has promised to keep its spending growth to two per cent a year, a challenge Mr Richardson says hasn't been obvious so far.
"It is now at a point in time where it has to be rather more specific about the policies that will achieve those savings.
"But it has to achieve those savings at a time when its polling is poor and the mechanics of a hung parliament make it difficult to achieve."
But it will also be an important test for the opposition.
"It is easy for them to talk tough in general terms about the need for spending savings, and then to oppose each individual saving as it comes up before parliament."
