Treasury too optimisitc on forecasts – things will be worse than they are telling us

AFTER years of criticism for being too pessimistic about the outlook for Australia’s commodities-fuelled economy, economists are now accusing the federal Treasury of being too optimistic.

Economists were almost unanimous yesterday in describing Treasury’s forecast for 2 per cent growth this year, and 2.25 per cent the next, as “too optimistic”.

Most also expect the modest budget surpluses forecast by Treasury in its mid-year economic and fiscal outlook to become multibillion dollar deficits.

The Treasurer, Wayne Swan, conceded yesterday the risks to Treasury’s outlook were “on the downside”.

The Treasury forecasts are based on the Chinese economy growing relatively rapidly and on Australia’s jobless rate rising only modestly to 5 per cent by mid next year, and 5.75 per cent by mid 2010.

But most economists are tipping unemployment will rise to 6 per cent or 7 per cent.

Meanwhile, a drastic shrinking in revenues from company taxes and capital gains is hurting Goverment revenues, slicing a combined $37.4 billion off budget surpluses over four financial years.

The surplus for this financial year – forecast at $22 billion in the budget – is now only expected to be $5.4 billion, due mainly to the Government’s $10.4 billion fiscal stimulus package and a $5 billion hit to revenue.

The chief economist at nabCapital, Rob Henderson, said the surplus was likely to be drained to a deficit of $10 billion by 2009-10.

After four years of growth above 5 per cent, the global economy is expected to grow by 3 per cent next year – a 1 percentage point cut from budget forecasts.

Business investment is also expected to slow, growing by just 5.5 per cent this financial year, down from an expected growth rate of 8.5 per cent in the budget.