But we are AAA rated.

[Rorschach]

Labor reels from $20bn budget hole
26 Jul 2013
Phillip Coorey Chief political correspondent

The federal government faces a forecast revenue shortfall of more than $20 billion over the next four years, prompting a robust internal debate about whether the budget razor gang should make cuts to offset all the losses or delay the surplus yet again.

Cabinet’s Expenditure Review Committee is due to meet again on Friday amid rising concern that a fresh round of severe budget cuts on the cusp of an election campaign would be political suicide.

Measures under consideration to help plug the revenue hole include increases in tobacco excise, abolishing loss carry-back tax provisions for business, and tightening family tax benefits and so-called middle-class welfare.

The ERC is looking to finalise savings measures so Treasurer Chris Bowen can release an economic statement before an election is called.

Ten days into the campaign, Treasury will release its own pre-election ­fiscal outlook (PEFO). The government wants to get the economic statement out first to pre-empt any shock the ­revenue write-downs in the PEFO would create.

But shadow treasurer Joe Hockey told The Australian Financial Review the process was becoming a sham and the Coalition would no longer respect the figures in either the economic ­statement or PEFO.

Previously, he promised to release detailed costings of Coalition policies only when PEFO was released. Now, he said, that pledge may no longer hold.

“We’re not going to cop the Treasury being bullied by the government into producing PEFO numbers that are closely aligned to the government’s,” he said.

“If PEFO looms the same as the economic statement, then PEFO won’t be worth the paper its written on.”

Mr Bowen has previously committed the government to honouring the May budget timetable in which the budget would be balanced by 2015-16 and return to surplus in 2016-17.

Despite this, in the 2½ months since, Treasury has downgraded ­revenue forecasts, especially from company, capital gains tax and income taxes.

Earlier this week, the Financial Review revealed the shortfall was forecast at more than $6 billion but senior sources have clarified that estimate as being for one year only and say the revenue write-downs over the forward estimates are now believed to be between $20 billion and $30 billion.

The government is still suffering from a backlash from the automotive industry after it cut fringe benefits tax concessions for salary-sacrificed cars by $1.8 billion to help pay for the $3.8 billion decision to shift the fixed carbon price to a floating price a year earlier than scheduled.

The car industry has so far raised an estimated $10 million with which it plans to fund a mining tax-style campaign to attack the government in the lead-up to the election.

The FBT decision stalled the poll momentum the government was enjoying after Kevin Rudd replaced Julia Gillard as leader.

There is now additional concern about the political impact of further budget cuts in pursuit of another ­surplus target.

One source familiar with the ­internal debate said there was “a range of dissenting views”.

“The internal tension is really about the pursuit of the surplus versus supporting jobs,” the source said.

Since becoming Treasurer, Mr Bowen has warned that trying to return to surplus earlier than outlined in the budget would deliver a “hammer blow” to the economy.

Mr Bowen is understood to have briefed market economists in Sydney at a closed function on Thursday.

On Wednesday night, Labor started running television commercials to push back at the Coalition and put into perspective the scale of ­Australia’s national debt. Prime ­Minister Kevin Rudd tells viewers Australia’s debt-per-capita was “one of the lowest in the developed world” and that Australia was one of only eight countries with an AAA credit rating from all three agencies.

Mr Hockey said Mr Rudd was ­softening the population for a ballooning in debt to be associated with the renewed revenue downgrades.

“The government can’t stop spending, spending like there’s no tomorrow,” he said.

“He is playing down the debt challenge because he wants to increase it. He wants to increase the debt.”

The government reacted angrily when opposition finance spokesman Andrew Robb questioned the worth of Australia’s AAA rating. Mr Robb pointed out that the agencies had erred grievously and had contributed to the global financial crisis.

“I remind you that Lehman Brothers, the collapse of Lehman Brothers, which started this global financial crisis, on that very day, they still had an AAA credit rating,” he said.

“What does an AAA credit rating really amount to? What I’m saying is you can’t place enormous store in the rating agencies.” At the time of the global financial crisis, Mr Rudd, then prime minister, also blasted the agencies for getting it wrong.

On Thursday, Finance Minister Penny Wong excoriated Mr Robb, saying his comments showed the Coalition was unfit to govern.

“It’s extraordinarily irresponsible but it really just perpetuates the approach Tony Abbott has taken since he’s been leader of the opposition: negativity, talking down the Australian economy and all the while confirming that he and members of his frontbench are simply not up to the task of running the Australian economy,” she said.

“They’re not fit to govern.” Senator Wong said the Coalition must start detailing its savings plans. On Friday, while ERC meets, Mr Rudd will be in Perth for the first time since retaking the leadership.

The managing directors of three fleet-leasing companies will seek to meet him while there and lobby him to reverse the FBT decision, which has seen more than 100 jobs shed from leasing companies.

Seems to me an ad with Kevin blasting the ratings agencies might be a good idea.