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Australian Budget Deficit Blows Out

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Familiar story, balloning deficits with the return to a balanced budget getting pushed further and further out.

Interesting to see just how dependent on China the Aussie economy appears to be.

http://www.channelnewsasia.com/news/business/international/australia-budget-deficit/763782.html

SYDNEY: Australia said on Friday its budget deficit has blown out to A$30 billion and revenues are shrinking, as it unveiled a pre-election mini-budget that includes a controversial plan to tax bank deposits.

The government also cut its growth outlook for the fiscal year to June as the mining-driven economy grapples with a slowdown in China that has seen commodities prices tumble.

With national polls approaching, Treasurer Chris Bowen said tough conditions had seen a further A$33.3 billion wiped off revenue estimates over the next four years.

This, he said, had forced the ruling Labor party into US$17.4 billion of "responsible savings".

The statement's release added to speculation that Prime Minister Kevin Rudd could call an election as early as this weekend, having now outlined fresh budget numbers as well as new policies on a raft of key issues.

Polls must be held before the end of November, with the Tony Abbott-led conservative opposition expected to narrowly win, although Rudd has clawed back significant support for Labor since ousting Julia Gillard in June.

In its statement, the government also upped its forecast unemployment rate in 2013/14 by 50 basis points to 6.25 per cent.

However, while the budget deficit for this fiscal year had ballooned from the A$18 billion forecast in the May budget, Bowen stuck to the government's plan to return a surplus in 2016-17.

He said the fall in commodities prices sparked by weakening growth in key export market China meant Australia's economy would grow 2.5 per cent in July-June, slower than the 2.75 per cent forecast in May. It is expected to rise to 3.0 per cent in 2014/15.

"The transition in the resources sector from a record investment boom to strong growth in production and exports is currently under way," he said.

"This will mean that non-mining sectors of the economy will need to lead growth in the future. This transition poses challenges for the economy."

AMP chief economist Shane Oliver said he was stunned at the scale of the deficit and speed at which it had worsened.

"I'm shocked by how much it has deteriorated," he said, adding that the promised return to surplus has been repeatedly delayed.

"We seem to keep pushing out the return to surplus and the return to surplus gets steeper and steeper as time goes by," he said.

In a bid to plug its revenue shortfall, the government this week announced a plan to hike tobacco taxes by 12.5 per cent per year over the next four years, to raise more than A$5.0 billion.

And on Friday, Bowen said he will also tax bank deposits up to A$250,000 at 0.05 per cent from 2016, raising a forecast A$733 million in the first 18 months.

Bowen said the cash would go into a new Financial Stability Fund, but will be counted as revenue in the budget, to protect savings in the event of a bank collapse.

"It'll be quarantined from the rest of the budget and just put aside in case there's ever a need with a bank getting into trouble in Australia," he said. "It hasn't happened in Australia for quite a while, but we can't be complacent."

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And on Friday, Bowen said he will also tax bank deposits up to A$250,000 at 0.05 per cent from 2016, raising a forecast A$733 million in the first 18 months.

Ah yes a tax on the savings that lead to capital formation. What could possible go wrong with this.

I love how it's an initially absurdly low rate, probably to help it get introduced and once introduced that 5 will keep moving to the left.

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Ah yes a tax on the savings that lead to capital formation. What could possible go wrong with this.

I love how it's an initially absurdly low rate, probably to help it get introduced and once introduced that 5 will keep moving to the left.

I know - the incredibly low rate really stood out as the giveaway. Clearly it will be jacked up once the fiscally-illiterate electorate have been shown to accept it.

How dumb can the Aussie population be if they put up with this? Well, no-one ever lost out by over-estimating public stupidity so if I was a betting man I'd say that the turkeys will almost certainly vote for Christmas (yet again).

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UK savings are already taxed, well the interest gained is are Aus savings taxed the same? If so is this an additional tax which has been created at such a low rate people just accept it will be more than covered by interest earned?

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UK savings are already taxed, well the interest gained is are Aus savings taxed the same? If so is this an additional tax which has been created at such a low rate people just accept it will be more than covered by interest earned?

Savings income is paid gross here, so $10k saved, paying 5% gross, well $500 bucks a year, then you include that $500 bucks as income on your tax return, just like your hourly wage or salary......

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