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Report shows govt far from low taxing: ALP

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November 13, 2017

Deloitte Access Economics' Chris Richardson says the budget outlook is based on 'shifting sands'.

Federal Treasurer Scott Morrison can be expected to reveal an improved budget bottom line when he releases the mid-year review next month.

But avid budget watcher and economist Chris Richardson doubts such good fortune will continue and the government will only scrape through with a promised surplus in mid-2021, saying its forecasts are built on "shifting sands".

"To get to a surplus, official forecasts assume a healthier economy than we do and they assume that healthy economy will then generate additional tax at record rates," Mr Richardson said on Monday releasing his latest Budget Monitor.

The Deloitte Access Economics economist also doubts either side of politics will be able to resist giving pre-election personal tax cuts.

"We therefore think that the official forecast to a return to surplus is built on shifting sands," he said.

He expects the mid-year economic and fiscal outlook, due in mid-December, will show a budget deficit of $25.8 billion for 2017/18, $3.6 billion better than predicted in the May budget.

The windfall is the result of higher company profits due to an improved China outlook lifting demand for Australia's key commodities, such as iron ore.

That will provide a lift to company taxes and a lift to employment boosting personal taxes.

While Mr Richardson also anticipates a $1.25 billion budget improvement for 2018/19, beyond that, upbeat company profits are unlikely to continue as the China economy slows and the Australian property market cools.

"Lower taxes on individuals adds to the mix in 2020/21 as the outlook for wages deviates further from Treasury's," Mr Richardson says.

Wages growth presently sits at its lowest level in at least 20 years at 1.9 per cent, while in the budget it is expected to lift to 3.75 per cent by 2020/21.

DELOITTE ACCESS ECONOMICS BUDGET FORECASTS (VERSUS MAY BUDGET):

2017/18 - $25.8 billion deficit ($29.4 billion deficit)

2018/19 - $20.2 billion deficit ($21.4 billion deficit)

2019/20 - $7.2 billion deficit ($2.5 billion deficit)

2020/21 - $2.3 billion surplus ($7.4 billion surplus)

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