Recent economic developments should tell Treasurer Wayne Swan that his dream of bringing the budget back to surplus in 2012/13 is over, and it might not happen for another two years, an independent forecaster says.
In his latest Budget Monitor, Deloitte Access Economics director Chris Richardson says while that outcome would be politically "horrendous", a surplus next year was a line in the sand drawn by politicians, not by economists.
He says when Mr Swan updates his forecasts in his soon-to-be-released mid-year budget review, he can tell the public that fading global prospects and weak markets at home have delayed the return to surplus, possibly until 2014/15.
"(But) a fired-up opposition will remind the public that no Labor government has run a surplus since 1989/90," Mr Richardson says.
Access is forecasting a small deficit of $1.9 billion in 2012/13, so Mr Richardson questions whether Mr Swan would still "go for it" and tighten fiscal policy to get over the line with a surplus, despite rising economic risks.
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In the May budget, the government forecast a surplus of $3.5 billion in 2012/13.
"With a government under pressure and desperate to get a surplus, it is a big deal, and we suspect the government will try extremely hard to get a surplus in 2012/13, come hell or high water," he said.
However, revenues have been hurt by weakness in the jobs market and a stumble in company profits, while capital gains revenue will be hit by the downturn in sharemarkets and house prices.
"Both weaker profits and lower wealth generate large and lingering impacts on tax collections," Mr Richardson said.
Aside from downgrading the 2012/13 budget position, he predicts that the 2011/12 deficit will be $31.2 billion rather than the government's forecast for $22.6 billion shortfall, while in 2013/14 there will be a $1.7 billion deficit instead of a $3.7 billion surplus.
In 2014/15 he is forecasting a $5.4 billion surplus, only slightly smaller than the $5.8 billion surplus predicted by government.
Mr Richardson said forecasts for world growth are weaker, with downside risks even greater as there is a chance "the ticking time bomb of Europe's financial markets could explode".
In Australia, households are saving rather than spending, the government's stimulus measures are winding down, the recovery in housing construction "has turned to ashes" and a still-strong Australian dollar is boosting imports and eating into exports.
At the same time, capital expenditure (capex) outside of mining is modest.
"Add in risks around what is happening in Europe and the US, and you'd be forgiven for thinking Australia's economy is in for a bad year," he said.
"Yet it isn't, because it has two big aces up its sleeve."
There is still a lot of the recovery from last summer's flood to come through, with coal exports likely to jump in early 2012, while mining capex is "not only going like a train, it has a momentum that is hard to stop", he said.
