Big hole in the Australian government’s budget

China’s slowdown has gouged a big hole in the Australian government’s budget, a new report said.

Slower wages growth in Australia has also hit government revenues hard, said Deloitte Access Economics.

It has forecast massive budget blowouts for both the 2014-15 and 2015-16 financial years.

The budget looks like it was “written by Stephen King and painted by Edvard Munch”, thanks to a crash in commodity prices, it said in its report.

The government will deliver its 2015-16 budget papers on 12 May, setting out its proposed revenue and expenditure in the following financial year, and its fiscal policy for several years after that.

The Abbott government campaigned hard in the 2013 election on its economic credentials, promising to balance the budget and not raise new taxes.

But last month, Australian Treasurer Joe Hockey said the government faced a multi-billion dollar revenue loss due to a plunge in the price of iron ore.

A large slice of Australian government revenue comes from royalties paid by miners on commodities such as iron ore and coal.

However, the government has said it remains committed to achieving a budget surplus.

Deloitte Access Economics, one of Australia’s main economic advisory firms, has projected an underlying cash deficit of A$45.9bn for the 2014-15 year.

“That is a substantial A$5.5bn worse than projected at budget time (last year) and shows little improvement from the recorded deficit of A$48.5bn in 2013-14,” said Deloitte partner Chris Richardson.

“And if you think that’s bad, then 2015-16 looks like it has been written by Stephen King and painted by Edvard Munch,” he said.

“Dull it ain’t: China continues to carve chunks out of Canberra, leading to rampant revenue shortfalls.”

He said also that wages growth, which jumped ahead of productivity gains during the commodity boom that is now coming to an end, was now “limping along” as businesses tried to claw back their competitiveness.

“That’s set to tear a new hole in the heart of the budget,” said Mr Richardson, adding that Deloitte had projected a deficit of $45.3bn for 2015-16.

“There are reasons to fear China’s slowdown could worsen, and the momentum in commodity markets is downwards,” he said.

Responding to the report, Prime Minister Tony Abbott said the government had a credible path back to a budget surplus but would not put a date on when that would be achieved.

“I appreciate what Chris Richardson has been saying. He is a very distinguished private sector economist,” Mr Abbott said at a press conference in Canberra on Monday.

“But I want to assure you that this government has a strong and credible plan to repair the budget and what will be obvious on budget night is that this is a budget that is measured, responsible and fair,” he said.