Deloitte report predicts federal budget cuts won't be as bad as feared

Despite all the talk of a horror federal budget, the Abbott government is finding it harder to cut spending programs than it thought it would, a former Treasury official says.

That means it may take the government longer to return the budget to surplus than planned. A new report from Deloitte Access Economics - its quarterly Business Outlook – says the feared cutbacks in government spending programs in the coming budget pose less of a threat to the economy than people thought.

That is because the Abbott government had been unable to convince voters of the true extent of the budgetary problems facing Australia, so its first budget may be one in which it “talks big but acts rather smaller than its own rhetoric”.

Those claims come as Prime Minister Tony Abbott promises a budget that boosts spending on infrastructure even as cuts are made elsewhere to reduce spending.

In a speech to be delivered on Monday, Mr Abbott will implore Australians to think about the national interest, rather than self-interest.

"This will not be a budget for the rich or the poor; it will be a budget for the country," he will say.

"This will be a nation-building budget, even though it cuts spending, because you can’t build a nation spending money you don’t have and that’s more than you need to borrow.

"Budgets reveal the character of governments; they also show the mettle of countries. This budget is about shifting our focus from entitlement to enterprise; from welfare to work; from hand-out to hand-up; from our own short-term anxieties to our nation’s long-term opportunities."

Chris Richardson, a director of Deloitte Access Economics who also worked at Treasury, says neither the Coalition nor the Labor Party went to the September election with much by way of a program of cuts, and that meant “there’s no mandate to implement what are the undoubtedly sensible suggestions in the [forthcoming] Commission of Audit’s report”.

“In fact, both sides went to the election promising extra spending in coming years, including on schools and a disability insurance scheme,” the report says.

The report warns that Commonwealth government spending will accelerate dramatically from 2017, and there are signs the government has been unable to get on top of it.

“The smoke signals coming out of Canberra’s Expenditure Review Committee are indicating that the government is finding it hard to achieve the sorts of cuts that budget repair requires,” it says.

“The upshot is that the pace of budget repair will be low, with the spin put on that as being the way of protecting the economy. And the flipside will, of course, be a slower return to surplus.”

“[And] that means that a feared negative to the economic outlook – savage cuts from Canberra – is unlikely to occur.”

The Abbott government has been warning for months that the federal budget faces years of deficits and that urgent action is required to get on top of the problem.

Its controversial Commission of Audit, due to report on Thursday, is expected to recommend billions of dollars in cuts to spending programs to aid a return to surplus.

Treasurer Joe Hockey also has been preparing voters for a future rise in the pension age to 70, ostensibly to counter the increasing cost of the pension.

The Deloitte Access report, published on Monday, says that despite the high unemployment rate – now 5.8 per cent seasonally-adjusted - the economy is showing signs of improvement, with a healthy boost in retail spending and housing construction thanks to record low interest rates.

It also says we should not worry too much about recent reported job losses because the job market is still growing.

“At the same time that the headlines were hogged by job losses, the Australian dollar fell and lower interest rates began to show up as better news in retail and housing construction,” it says.

“That suggests the worst of the current job cycle may be behind us.”

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The story Deloitte report predicts federal budget cuts won't be as bad as feared first appeared on The Sydney Morning Herald.

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