Thursday, March 8, 2012
A day after Reserve Bank governor Glenn Stevens left interest rates on hold, telling Australians that growth was ''close to trend'', the Australian Bureau of Statistics reported that growth in the year to December slowed to 2.3 per cent. Even in the six months to December, annualised growth was just 2.5 per cent.
Virtually all of the growth was in the coal and iron ore states of Western Australia, Queensland and New South Wales. Victoria, South Australia and Tasmania all went backwards.
The figures came as Treasury secretary Martin Parkinson revealed that federal and state revenues are now in crisis, with tax collections down by 4 per cent of GDP - almost $60 billion a year - and unlikely to return to former levels ''for many years to come''.
He warned of more pain ahead, saying: ''For both levels of government, surpluses are likely to remain at best razor-thin without deliberate efforts to significantly increase revenue or reduce expenditure.''
Dr Parkinson blamed the revenue collapse partly on tax breaks for mining. He revealed that mining companies earn about 20 per cent of all corporate profits, but pay only about 10 per cent of all corporate taxes, thanks to their huge deductions for depreciation.
Yesterday's figures show that in the first half of 2011-12, company tax collections rose just 1 per cent year-on-year. Last May the federal budget papers forecast an increase of 29 per cent. If the gap persists, it implies a revenue loss of $16 billion a year.
The bureau said state governments' revenue across Australia rose just 1 per cent in the first half of the financial year, while their spending rose 5.4 per cent. The state revenue collapse - mainly due to the slump in house prices - turned a combined surplus for the states of $4.15 billion a year ago into a deficit of $500 million.
The Baillieu government is implementing deep spending cuts to keep its budget in balance, cutting 3600 public sector jobs. The Gillard government has told departments and agencies their budgets will be cut by 4 per cent next year, implying thousands more jobs lost.
Treasurer Wayne Swan said that the poor revenue and weak growth figures would force the government to make ''significant'' spending cuts and/or revenue increases in the May budget to achieve its goal of a budget surplus in 2012-13.
''There's no doubt that there'll have to be significant savings,'' he said. ''But we think we absolutely need to do it ? to send a signal to the world that we're in good fiscal nick.''
Yesterday's figures show spending cuts are already dragging growth down. Cuts in state government investment wiped $2.5 billion off the nation's output for the December quarter, falling 15 per cent year-on-year as federal stimulus payments end and governments put off projects to stay in the black.
Victoria was less affected than most. But in seasonally adjusted terms, the bureau estimates total spending in the Victorian economy fell 0.5 per cent in December, after growing just 0.1 per cent in the previous quarter. On its preferred trend measure, Victoria's bottom line fell marginally in the December quarter.
Victoria, SA and Tasmania are being dragged down by the combination of a very high dollar, relatively high interest rates and government spending cuts. NSW is being kept going by coal investments, while WA and Queensland are booming.
The bureau figures show a very sharp divide across Australia. Spending in Queensland, NT and WA combined grew 11.3 per cent year on year. In Victoria, NSW, SA, Tasmania and the ACT, combined spending grew by just 1.4 per cent.