The Treasury is worried about Australia losing its triple-A credit rating, far more so than it was able to admit in the budget papers that were signed of by Treasurer Scott Morrison. Photo: Alex EllinghausenLatest from Federal Election 2016Big spending cuts, or tax rises, needed for surplus: update
Nanjing Night Net

About the only thing the Treasury believes about this year’s budget is the economic forecasts. It certainly doesn’t believe the deficit forecasts.

Temporarily unmuzzled by its political masters, the Treasury has revealed that the forecasts are propped up by $18 billion of budget measures still on the books but not yet through the Senate. Many date back to 2014. They are propping up their third budget.

They are propped up too by “the established practice of assuming that, once the economy returns to potential, it remains growing at that rate”.

The practice assumes away problems. “Should Australia experience a significant negative economic shock, the fiscal position would be expected to deteriorate rapidly and not be consistent with the projections,” the Treasury warns.

The most bizarre and unlikely assumption is that Australia’s tax receipts will never climb above 23.9 per cent of GDP. It’s a government-imposed figure which is the average between the introduction of the GST and the global financial crisis. There’s no particular reason for it, and it makes budgeting nonsensical. When Australia’s tax receipts eventually climb back up to that level it will be impossible to improve the budget by tightening up on tax concessions. As soon as that’s done, other taxes would need to be cut in order to stay below the ceiling. The budget could be improved by eating into pensions, but not by eating into super concessions.

The Treasury is also worried about Australia losing its triple-A credit rating, far more so than it was able to admit in the budget papers that were signed of by the Treasurer. “It is crucial for Australia to maintain its top credit rating to ensure the Commonwealth’s borrowing costs, and those across the economy more generally, are kept as low as possible,” it says.

If the government’s rating was downgraded, the ratings of the banks would also fall. Private estimates say it would add about $200 million to banks’ interest bills.

The Treasury left its economic forecasts the same in order to avoid implying false precision, and perhaps also to avoid distracting from its central message, that the projections in the budget it helped produced just three weeks ago are less than believable.

Peter is economic editor of The Age

Follow Peter Martin on Facebook

This story Administrator ready to work first appeared on Nanjing Night Net.