• Service: Tax, Topics, Federal Budget
  • Type: Regulatory update
  • Date: 29/04/2014

Tax Insights

KPMG's analysis of tax issues and developments.

Grant Wardell-Johnson

Grant Wardell-Johnson
Leader, Australian Tax Centre

+61 2 9335 7128

Federal Budget 2014 – How the half-full glass becomes half-empty 

by Grant Wardell-Johnson, Australian Tax Centre

The message of this forthcoming Budget has been established in the last 6 months and is clear: we are in need of budget repair to set in place a sustainable future and all will need to share in the pain required to get there. It can seen as a responsible narrative in that it sets in place the political framework for tough decisions. That is not to deny that there will be a significant diversity of thought on what those tough decisions should be.

If just before the last election, you had looked at the Budget forecasts under Labor policy settings and Coalition policy settings you would have seen a relatively similar picture for the projected position over the period to 2016-17.


The Pre-Election Economic and Fiscal Outlook (PEFO) 2013, costed by Treasury under Labor policy settings, predicted budget surpluses in the 2015-16 and 2016-17 years with an overall deficit for the 4 years of approximately $38 billion.


The Coalition had released its costings, undertaken by a number of specialists, which also predicted budget surpluses in the 2015-16 and 2016-17 years with an overall deficit for the 4 years of about $30 billion.


Four months later, in the Mid-year Economic and Fiscal Outlook 2013-14 costed by Treasury, the picture looked decidedly different. The overall deficit was predicted to be approximately $107 billion for the 4 year period.


The difference of $77 billion lies in “Change in economic conditions and other parameters”. While this includes Paid Parental Leave and company tax rate policy changes which were too uncertain for Treasury to cost, the change is mostly based on different economic assumptions.


It is clear that the changes in the world economy between September and December of last year were not dramatic. What has happened is that there has been a move from the ’optimistic’ to the ’pessimistic’ side of the spectrum of reasonable inputs into the Treasury modelling. That would appear to be prudent from a Government and Treasury perspective. The important point is to understand what is happening and put this in perspective.


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