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- Peter Martin: About the only thing treasury believes about the budget is the economic forecasts
Treasury and finance have warned both sides of politics that big spending cuts, or higher taxes, will be essential if the budget is to be returned to surplus.
![Treasurer Scott Morrison delivering the budget earlier this month.](/web/20160723191755im_/http://www.theage.com.au/content/dam/images/g/o/l/g/c/f/image.related.articleLeadwide.620x349.gozsw2.png/1463741951661.jpg)
And in a blunt message to their political masters, departmental secretaries John Fraser and Jane Halton say it is "crucial for Australia to maintain its top credit rating".
The warnings are contained in the Pre-Election Economic and Fiscal Outlook, which is prepared by the two top financial authorities without input from ministers and released shortly after the start of the campaign.
![Opposition Leader Bill Shorten delivers his budget reply speech earlier this month.](/web/20160723191755im_/http://www.theage.com.au/content/dam/images/g/o/n/k/y/q/image.related.articleLeadwide.620x349.gozsw2.png/1463741951661.jpg)
Coming so soon after Scott Morrison's May 3 budget, the major forecasts for gross domestic product, unemployment, wage growth and the consumer price index are unchanged, despite a recent interest rate cut, a fall in the iron price and weak wages and labour force data.
"Without considerable effort to reduce spending growth, it will not be possible to run underlying cash surpluses, say in the order of 1 per cent of GDP, without tax receipts rising," it says.
The government has imposed a ceiling on tax revenue of 23.9 per cent of GDP.
The heads of treasury and finance say that even if the government manages to spending back down to its long-term average, tax receipts would still need to climb to around 24.2 per cent of GDP by 2026-27, well above the average of the past 30 years, and well above the government's target in order to achieve a surplus of 1 per cent of GDP."
It says the budget forecasts are propped up by $18 billion of unlegislated so-called zombie measures from this year's and earlier budgets that have yet to pass through the Senate. If they remain stalled, the five-year budget outcome will be $18 billion worse than the budget papers suggest.
The document quotes tax commissioner Chris Jordan as saying that one of the budget measures, the tax cut for Australians earning over $80,000, is unimplementable without leglislation. The government says the tax cut will start on July 1 as promised however income will be deducted from pay packets under the existing schedule. If later the measure is approved by the Parliament the schedule could be amended, or extra could be returned to high income earners in their tax returns.
Finance Minister Mathias Cormann said that wasn't a problem given that people would not be putting in their income tax returns for the 2016-17 financial year until next year. It was how previous Labor governments had handled similar tax cuts.
Shadow treasurer Chris Bowen said Labor backed the tax cuts but that the government had "clearly not done its homework".
"The dysfunction of having a budget brought down and then three weeks later, less than three weeks later, the secretaries of the departments reporting that a key measure might not be delivered says it all. This is a budget which veered from thought bubble to thought bubble."
Mr Cormann called on Labor to explain how it would fund its promises. The release of the document left it "no more excuses"
The department echos a warning from ratings agency Moody's last month that Australia's AAA rating was be at risk.
"Commonwealth government debt levels are projected to reach recent historical highs, both on a gross and net basis," it says. "These debt levels are not an immediate concern given historically low interest rates and a growing economy, but should Australia experience a significant negative economic shock or increased interest rates or debt levels rise above current projections over the medium term, the debt burden will impose an increasingly significant cost on the fiscal and economic outlook."
"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."
Mr Morrison and Mr Bowen will face off in a debate next Friday.
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