Australia Forecasts AUD40bn Slump In Tax Revenues

by Mary Swire, Tax-News.com, Hong Kong

05 November 2008

The Australian government warned on Wednesday that tax receipts are expected to be around AUD40bn (USD28bn) lower than forecast over the next four years as a consequence of the global financial crisis.

Releasing the Mid-Year Economic and Fiscal Outlook 2008-09, Treasurer Wayne Swan observed that a "dramatic change" has taken place in global economic conditions in recent months, with the global financial crisis now entering what he termed as "a dangerous new phase." As a result, tax revenue forecasts have been revised down by AUD4.9bn in 2008-09, AUD12.2bn in 2009-10, 12.4bn in 2010-11 and AUD7.9bn in 2011-12.

Swan said that these downward revisions to revenue are particularly the result of lower forecasts of capital gains tax due to the recent dramatic falls in global equity markets. These revisions also reflect the substantial negative impacts on company profits of the credit market turmoil, weaker global growth, and from 2009-10, falling terms of trade. Policy decisions, he argued, have had "relatively little impact" on estimated expenses and revenues for these future years.

However, according to Swan, the Australian government is well placed to meet these challenging economic and fiscal conditions, and it is continuing to budget for surpluses in 2008-09 and across the forward estimates. An underlying cash surplus of AUD5.4bn is forecast for 2008-09 (0.4% of GDP). In accrual terms, the fiscal balance is expected to record a AUD5.8bn surplus in 2008-09 (0.5% of GDP). Nonetheless, the budget surplus projections are much lower than forecast at the time of the May budget.

"While Australia is clearly not immune from the effects of the global financial crisis and the global downturn, we are better placed than most other countries to withstand the fallout," claimed Swan.

"The government remains prepared to take the tough decisions necessary to protect our economy during the global financial crisis, and to implementing our long term agenda in the most responsible way," he added.

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