In his first major economic statement since the September election, Treasurer Joe Hockey has unveiled what he says is the true state of the books after six years of Labor government.
(Transcript from World News Australia Radio)
The Mid-Year Economic and Fiscal Outlook, known to politicians as MYEFO, shows deficits totalling more than $120 billion over the next four years, starting with a figure close to $50 billion for this financial year.
Mr Hockey says without a significant improvement in productivity growth, the declining terms of trade and the ageing of our population mean that Australia is facing the slowest decade of national income growth since national accounts were first introduced in the 1950s.
Preparing the ground for major cuts in the May budget, Mr Hockey says without radical repair work, the deficits could run for a decade.
Amanda Cavill has the details.
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Treasurer Joe Hockey has announced a budget deficit of just under $50 billion this year.
The Mid-year Economic and Fiscal Outlook figures prepared by Treasury have outlined four years of budget deficits totalling $123 billion, with no return to surplus expected until 2018.
Treasury had forecast a $4.2 billion dollar surplus for 2016/17 in its independent pre-election fiscal outlook.
The figures also show Labor's annual spending grew at 3.5 per cent over the past five years, rather than the two per cent touted by then Treasurer Wayne Swan.
Mr Hockey says the massive budget blowout is the result of a Labor spending spree.
He says the government will lay out a roadmap back to surplus in the months ahead.
"One thing is for sure: no country has ever taxed its way to prosperity. Much of the projected growth in spending is from social programs including welfare, education and health. Spending reform will inevitably require difficult choices about the policies that Australians need now and in the years to come. Taxpayers can no longer afford old government spending priorities. 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."
Economic growth is forecast to remain below trend of three per cent for the next two years as the unemployment rate continues to
rise to 6.25 per cent.
Mr Hockey says the Coalition has inherited gross debt that will reach $460 billion within the next four years which would rise to more than $600 billion if left unchecked.
"Returning the Budget to sustainable surpluses will not be achieved by piecemeal savings here and there. It will require a sustained and fundamental structural overhaul of expenditure. Of course, our fiscal and economic objectives must be complementary. Below trend growth and rising unemployment simply make it harder, not easier, to repair the Budget. Our economic and fiscal plan is the answer. Over the next six months we will continue to roll out our agenda, focused on a stronger economy. All options are on the table."
The budget update says key steps taken by the Coalition government to address unresolved issues inherited from Labor include an $8.8 billion grant to the Reserve Bank of Australia to strengthen its capacity to withstand future shocks.
The processing of asylum-seekers is expected to cost $1.2 billion more than forecast.
Restoring school funding will cost an extra $1.2 billion, while removing almost 100 previously announced but unlegislated tax and superannuation measures would cost a further $2.9 billion.
The Mid-Year Economic and Fiscal Outlook also shows the government intends to follow through with the 43.1 million dollars' worth of cuts to Indigenous legal services, including NATSIL, which were detailed before the September election.
Labor's Treasury spokesman Chris Bowen says the government is using scare tactics to justify deep cuts in the May 2014 Budget.
"Joe Hockey is softening up the Australian people. He's preparing the ground for deep and brutal cuts come budget time; cuts to come that will affect every Australian. This is Mr Hockey's attempt at an alibi but it's also his attempt to soften up the Australian people for the true Liberal agenda which is cuts across the board as they were always planning to do."
Prime Minister Tony Abbott says Labor has mismanaged the budget and now it's up to his government to fix the problem.
"This has been the most disastrous period for budget management in our history. Never has the budget deteriorated as quickly as it did under Labor, despite the fact that we have had terms of trade at record highs. So this is a period of monumental economic incompetence under the Labor Party. But having laid out the full extent of Labor's disaster, the repair job begins."
Chris Richardson, from Access Economics, says assigning blame is pointless.
Mr Richardson has told Sky news the real problem lies in long term structural problems with the economy and the budget.
"Nobody should get lost in the whole who's to blame. Everyone's to blame. What you had was a decade long boom that threw money at the budget. You know China was strong, that was great for the tax man. But that boom turned out to be temporary. Sadly both sides of politics pretended it was permanent. Tax cuts, spending increases. That's the problem we've got today."
The full details of how the Abbott government plans to rein in spending won't be revealed until the May budget, which will draw on advice from reviews including the national commission of audit.