Politicians urged to be honest about budget repair as deficit heads toward combined $129 billion over four years

WE need to talk about the deficit, economists say, as deficits head towards $129 billion over four years.

Prime Minister Malcolm Turnbull and Treasurer Scott Morrison.

POLITICIANS need to be “honest with the punters” about Australia’s Budget challenge because the nation is facing deficits totalling $129 billion over four years, Deloitte Access Economics has warned.

As Treasurer Scott Morrison prepares to release the government’s pre-election Budget next Tuesday, the respected analysts will today urge all political parties to be more honest about what needs to be done to bring the Government’s books back into the black.

Deloitte Access director Chris Richardson said the combined Budget deficits between 2015-16 and 2018-19 were likely to be $21 billion bigger than predicted by Treasury last December because revenue is being written down by $16 billion.

Debt was on track to peak at a higher level than it had in the aftermath of the 1990s recession.

“The Budget boom of the past decade continues to become a Budget bust,’’ Mr Richardson said. “The combination of China’s slowdown, still rotten commodity prices and weak wage growth have cut overall revenues by $4.1 billion in 2015-16, and the damage remains large, with a further shortfall of $3.5 billion in 2016-17.”

A decline in revenue from profit-based taxes was expected to see tax collections fall $3.5 billion below Treasury expectations in 2017-18. The deficit was likely to shrink from $41.6 billion this year in 2015-16 to $24.4 billion in 2018-19.

Mr Richardson said the combination of a hostile Senate and election-year spending commitments made to the states had made Mr Morrison’s attempts to reduce the deficit more difficult.

He urged federal politicians and public servants to be honest with the public about the extent of the Budget challenge.

“Figure out the medicine the Budget needs to take, and then be honest about that with the punters,’’ he said. “Politicians of all sides need to be more honest about the need for spending cuts and tax increases.’’

Mr Richardson said international ratings agencies would be unwise to downgrade Australia’s AAA credit rating as debt approached a peak.

“Australia has a deficit problem rather than debt level,’’ he said.

Former Treasurer Joe Hockey’s attempts to put the Budget back to a surplus was hindered by the Senate and by public outrage at the cuts he chose to introduce.

Next week’s Budget is expected to include modest personal income tax cuts to save middle-income earners from being pushed into higher tax brackets.

Some tax relief for companies is also expected and high-income earners will have to pay more tax on their superannuation.

Originally published as Politicians urged to be honest about budget repair as deficit heads toward combined $129 billion over four years