Economists doubt return to surplus in five years   (Category: Financial News) ECONOMISTS have questioned the budget's projection that the record deficits will be returned to surplus within five years, amid concerns the spending cuts and fiscal stimulus are not tough enough to rescue Australia from the red. However, most financial market economists believe the spending cuts, worth $22 billion over the next four years, are not enough to bring the budget back to surplus within the Government's timeframe. The Government's forecast that the Australian economy would contract by just 0.5per cent in the year ahead, before returning to above-trend growth, has also created concern in the financial markets. The Australian equities market showed little reaction to the Labor budget, closing slightly lower, while the dollar traded around US76.70c, in line with Tuesday, for most of the session yesterday. ANZ's head of foreign exchange research, Amy Auster, said equity, fixed income and foreign exchange markets were calmed by the statement from Standard & Poor's that Australia's sovereign rating was not under threat from the budget. "To get it back into surplus you need to get productivity and credit growth to increase tax revenue and get the balance back." UBS chief economist Scott Haslem said the Government had further scope to implement deeper spending cuts outside the changes implemented primarily to health care, superannuation and middle-class welfare changes. "The deficits in the near term are large and lift debt outstanding materially to more than $300billion," he said. "But given the extent of the deterioration in the increasingly commodity-linked revenue, the Government's growth forecasts and previously timely pre-emptive fiscal spending the deficits don't look unaffordable given the very low starting point for government debt." There were doubts among economists yesterday as to whether the Australian economy would meet the Government's projections to grow at 4.5 per cent until 2015, the timing of the budget's return to surplus. ANZ's chief economist Saul Eslake said:"... We see no grounds for concern about the foreshadowed deficits and net debt for the period immediately ahead. We suspect that the task of returning the budget to surplus by the middle of next decade remains unfinished business which will require further attention in future budgets." Scott Murdoch | May 14, 2009 Article from: The Australian (edited) Back   Print this article