Things not been this bad since global crisis, says Treasury head

Martin Parkinson said he will be able to produce a final figure for the cash balance before the election.
Martin Parkinson said he will be able to produce a final figure for the cash balance before the election.

A PROFITS squeeze of historic proportions lies behind the government's deteriorating budget position, according to the federal Treasury, which says things have not been as bad since the global financial crisis.

Appearing before the Senate's economics committee on Thursday, the Treasury head, Martin Parkinson, promised to reveal details of the final deficit or surplus for 2012-13 before the election even though he was not legally obliged to.

The election is due on September 14. The Treasury's pre-election financial statement is due on August 22, but the final budget outcome is not due until September 30.

Responding to questions from the Coalition senator Mathias Cormann, Dr Parkinson said although he would not have all the figures ready before the election, he should be able to produce a final figure for the underlying cash balance - the most watched measure of surplus or deficit - well ahead of the pre-election outlook.

If the government did not release it before the pre-election financial statement he would release the statement.

''Nobody will be under any illusions, or shouldn't be under any illusions, that they won't know the underlying cash balance number in time for the election,'' he said. ''It will be, or should be, publicly available. The bottom line will be known.''

Australia's budget position has deteriorated swiftly because commodity prices have crumpled while the dollar remains high.

''We would traditionally have expected the exchange rate to fall as well,'' he said. ''The fact is the exchange rate has stuck up. What that has meant is that for firms in sectors such as mining, where revenues are in US dollars and costs are in Australian dollars, their margins are squeezed. It's a profit squeeze that is flowing through into particular types of revenue.''

David Gruen, the Treasury's head of Australian macro-economics, said income growth was its weakest relative to economic growth since the global financial crisis.

Nominal gross domestic product had grown far slower in the past year than real gross domestic product. Nominal GDP is the dollar value of what is produced and earned. It is the measure that drives tax revenue. Nominal GDP grew just 1.9 per cent in the year to December, far below real GDP growth of 3.1 per cent.

''It is extremely unusual for the dollar value of the economy to grow slower than real value,'' he said. ''Our quarterly national accounts data goes back to 1959. There are only two quarters in that time in which nominal GDP growth was that far below real GDP growth - both were in the global financial crisis.''

The only other times nominal GDP growth fell behind real GDP growth were during the economic slump of 1961 and the 1997 Asian economic crisis.

Real GDP was likely to remain depressed for the next two years.

Asked how long he thought it would take to achieve a surplus in the new environment, Dr Parkinson declined to answer, saying that the question invited him to express a personal view.

He would work with the Tax Office and ''hopefully with the industry'' to try and ''unpick'' why mining tax collections were so much lower than expected.

This story Things not been this bad since global crisis, says Treasury head first appeared on The Sydney Morning Herald.