Budget update brings deficit blowout and hits to health and aged care

Treasurer Scott Morrison described the growth forecast as a ‘more realistic outlook’. Aaron Bunch/AAP

Health, welfare compliance and aged care have been targeted for savings in a budget update that forecasts deficits bigger than expected in May and pushes out further the return to surplus.

In some 180 savings measures more than offsetting extra spending since the May budget, there will be another welfare compliance crackdown, while people with welfare and family assistance debts will face an interest charge, encouraging them to pay back their debt.

Changes to the Medicare Benefits Schedule for diagnostic imaging and pathology bulk-billing incentives will save more than $650 million over four years, while savings in aged care are to yield more than $500 million. Former Prime Minister Tony Abbott’s “green army” is being capped, saving $317.5 million.

The deficit this financial year is now forecast to be $37.4 billion, compared with $35.1 billion in the May budget. By 2018-19 the deficit is projected to be $14.2 billion; at budget time it was projected at $6.9 billion by then.

Across the four year budget period the total estimate for the deficit has blown out by $26 billion.

“The budget repair strategy is designed to deliver budget surpluses building to at least 1% of GDP as soon as possible consistent with the medium term fiscal strategy,” the Mid-Year Economic and Fiscal Outlook (MYEFO) says.

A return to surplus is delayed by a year since the budget – it is now put at 2020-21.

With a sluggish economy, growth for this financial year has been revised down by 0.25% to 2.5%, with growth next financial year trimmed from 3.25% to 2.75%. The assumed pace of real GDP growth in the five years from 2017-18 has been revised down to 3% from the 3.5% assumed in the 2014-15 budget.

Treasurer Scott Morrison and Finance Minister Mathias Cormann described the growth forecast as a “more realistic outlook”, which “should be seen as a statement of confidence”.

Revenue write downs total almost $34 billion caused by falling commodity prices, declining terms of trade, weaker global growth and the reduction in the domestic growth figures. The assumption for iron ore prices has been reduced from US$48 per tonne in the 2015 budget to US$39 per tonne.

Government payments as a share of GDP are estimated at 25.9%, falling to 25.3% in 2018-19; real growth in outlays has been reduced from 2% to 1.8% a year over the budget period.

The savings push has added more than $400 million in net saving to the bottom line. Morrison said that gross savings of more than $10 billion had been made.

The budget is optimistic about employment, with the jobs outlook revised upwards and the unemployment rate expected to peak at a lower level than previously forecast. The unemployment forecast for this financial year is now 6%, compared with the budget’s 6.5%, remaining at about 6% in the June quarters of 2016 and 2017.

Government debt is projected to peak at $647 billion by 2025.

Morrison likened the budget’s journey to a family’s car trip. “As we go into this summer season and Christmas season, many Australians will jump in the car and they’ll head off to their favourite holiday destination. They know where they’re going and they know how to get there. There are no shortcuts, there may be some delays on the way with road works or things like this, there will be plenty of people in the back seat … saying ‘Are we there yet? Are we there yet? Are we there yet?’ That’s natural.

"But our path back to budget balance is very similar to that. We need to take a very safe and careful route and one that does not put at risk the very important objectives we have on growth and on jobs.”

Opposition leader Bill Shorten said the Liberal government was on “a road to nowhere”. He said the harshest cuts hit people least able to protect themselves – including cancer patients.

Shadow treasurer Chris Bowen accused Morrison of being “mendacious” in his claim about containing spending growth. The government was only reducing this growth after earlier doubling it, Bowen said.

He said the report card on the budget was “a great big fail”.

“Deficit reduction and returning to surplus was at the heart of this government,” Bowen said.

Update: reaction

Business and the ACTU both said the figures showed revenue needed to be addressed, although they have different prescriptions.

The Business Council of Australia’s chief executive Jennifer Westacott said: “We are over-reliant on a relatively narrow, volatile tax base and must undertake reforms that reduce our reliance on taxes that discourage productive investment, effort and risk taking”. She warned that any suggestion that increasing the overall tax burden was a solution to the budget problems was short-sighted and would only undermine economic growth and future revenues.

ACTU president Ged Kearney said the government had “overlooked the fiscal elephant in the room of falling revenue and chosen instead to make cuts to health, income support payments, family day care and aged care”. It should be clamping down on superannuation concessions and other tax loopholes favouring high income earners and multinational companies.

The Australian Industry Group, while warning against panic, said the increase in the anticipated deficit “reinforces the uncomfortable extent to which our economy is reliant on commodity exports and the importance of developing alternative sources of economic activity to diversify the structure of our economy and to reduce our exposure to commodity price volatility”.

The Australian Medical Association lashed out at the health savings, with AMA chief Brian Owler saying the axing of bulk billing incentives for pathology and diagnostic imaging services would increase the health cost burden on families, “with the poorest and the sickest being hit the hardest”. “It is yet another co-payment by stealth,” he said.

The Consumers Health Forum also attacked the measure, saying many patients requiring pathology tests would face out-of-pocket costs for the first time, if pathology practices failed to absorb the impact of reduced Medicare benefit payments.