The slower economy than envisaged at Budget time in May has delivered a $20 billion hit to revenue, or so it is reported, which spread evenly over the Budget estimates would trim $5 billion off the bottom line per year. If unchecked, there would be a deficit in 2012-13 and 2013-14, something unwelcome given the broad influences impacting the Australian economy now.
A conservative haircut rather than a back, crack and sack wax for Government spending is in order to make sure the surplus projections are maintained.
From MYEFO, expect to see a very low tax to GDP ratio for 2011-12 and beyond, driven by flat real growth in government spending - a feat never delivered by the Howard Government in 12 Budgets. Net government debt will likely be revised up by about 0.5% of GDP (but still peaking below 8% of GDP). The economic forecasts will be broadly the same as the RBA with GDP growth around 3.25% in 2011-12 and 2012-13, with the unemployment rate forecast to rise to 5.5%.
One interesting issue might be the Treasury forecast for inflation. The RBA remain of the view that the CPI risks remain tilted to the high side. Treasury may well forecast a 2% inflation rate for the year to June 2012 and be around 0.5% below the RBA forecast for the period beyond. I suppose this is fair enough - the latest RBA forecasts would not have factored in the fiscal action we will see today- Treasury numbers obviously would.