Federal election 2016: Mini-budget needed to cut debt, Bowen

An emergency mini-budget would be held within 100 days of the election under a Labor plan to reset the budget.

Chris Bowen at his electoral office in Fairfield West, in Sydney, yesterday. Picture: Robert Pozo

An emergency mini-budget would be held within 100 days of the election under a Labor plan to reset the budget amid claims of a $3.6 billion blow from a cut to the nation’s AAA credit rating.

Labor Treasury spokesman Chris Bowen will outline the strategy today in an attack on Scott Morrison for making “rosy” forecasts that put a future budget surplus on “shaky” foundations.

Making it clear that Labor is prepared to cut spending and raise taxes to repair the budget, Mr Bowen will use a major speech today to warn that tough decisions will be needed to keep the AAA rating and avoid paying a bigger interest bill on federal debt.

“The best strategy on the AAA rating is don’t lose it,” he will say, according to a draft of his speech released to The Australian.

“Keeping it is easier than getting it back.

“If it means dropping ideological leanings and reducing the ­deficit through both spending and revenue decisions, you do it.”

Mr Bowen’s speech sets out a case for firm action on the budget ­just as Labor claims more than $100bn in “budget improvements” over 10 years, giving it room to make election promises in the weeks ahead without posting a bigger deficit.

The government has stepped up its attack on those costings, with Finance Minister Mathias Cormann yesterday warning that Mr Bowen must also find a way to offset government savings and revenue measures that Labor has blocked. The government estimates these blocked savings are worth $69bn over a decade.

Mr Bowen will use his speech to the National Press Club today to reject the government’s attacks and accuse Mr Morrison of using optimistic assumptions to outline a return to budget surplus early next decade.

He will warn of a hit to the economy if the budget is not repaired and ratings agencies downgrade their assessments — and force the government and the private sector to pay more on their loans.

“Over time a quarter of a percentage point increase in the interest rate payable on Australian government borrowings would increase the commonwealth’s annual interest expense by about $900 million per year, or by about $3.6 billion over the forward estimates period,” he will say.

Mr Bowen will announce that a Labor government would bring forward the midyear economic and fiscal outlook, due in December, to within three months of the election. The plan would mean a major economic statement — a mini-budget, in effect — within 100 days of the election.

Highlighting these concerns, National Australia Bank chief economist Alan Oster and his colleagues warned yesterday there was “not much wriggle room” in the government plan to post a surplus. Mr Oster warned that the ratings agencies had been “circumspect” in their response to the budget with Standard & Poor’s flagging concern that the nation’s net debt was nearing 30 per cent of the economy, while Moody’s highlighted the deterioration in tax revenue forecasts.

“Our sense is the budget has done enough to avoid a more stringent warning from the ratings agencies but a change in rating outlook is not out of the question,” the NAB economists wrote.

NAB generally supported the Treasury forecasts for economic growth but warned of a “notably more pessimistic” assessment than Treasury from 2017-18.