Australian Government May Allow Budget To Go Into Deficit

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

28 November 2008

Australia's budget may suffer a temporary deficit if the current global financial crisis worsens, the country's Prime Minister, Kevin Rudd has admitted.

Rudd's admission ends weeks of speculation that the Australian government might be feeling the effects of the credit crisis, and it would be the first time in seven years that the government has had to declare a federal budget deficit.

Rudd told parliament that the government would be prepared to go into a "temporary" deficit situation to finance extra public spending in an attempt to stave off a recession – a move welcomed by economists who have been calling on the government to use its surplus.

In light of the news, the Prime Minister has also been urged by opposition leaders to consider cutting rates of income tax as another effective way of stimulating short-term economic growth.

At the beginning of November, the Australian government warned that cracks were appearing in its finances, revealing 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.

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