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No damage if surplus dumped: economists

Thursday, December 13, 2012
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Economists believe the federal government can ditch its much promised budget surplus without damaging its triple-A credit rating.

Treasury reportedly has advised the government to dump its commitment to a surplus, warning a slump in nominal economic growth poses a threat to revenue.

The government has been promising a return to surplus in 2012/13 after it was forced to go into deficit during the 2008-2009 global financial crisis.

The surplus forecast has been cut back slowly, and was predicted to be a slim $1.1 billion in the mid-year budget review released in October.

"When the surplus was originally envisaged, we weren't envisaging this sort of fall we have seen in commodity prices and the sort of low inflation we're seeing in the economy," Westpac chief economist Bill Evans told reporters in Canberra on today.

This would mean nominal gross domestic product (GDP), a key driver of government revenues, has not been as strong as expected, and its forecast rate of 4 per cent was too high.

Mr Evans said it was probably the wrong time for any further budget savings that directly impacted upon confidence in the economy.

But neither did he expect financial markets or the credit rating agencies to react negatively if the government shelved a surplus for now.

"Australia's debt position is extraordinarily strong," Mr Evans said.

"I don't think Australia's rating is in any doubt."

It was more about indicating the government was committed to fiscal discipline and demonstrating that.

"And that is what they have undoubtedly done."

Australian Chamber of Commerce and Industry chief economist Greg Evans supports a balanced budget over the economic cycle, but not "at all costs" to the economy.

The changed timing of corporate tax payments announced in the Mid-Year Economic and Fiscal Outlook that would raise $8 billion, was an example where business felt the achievement of the surplus was affecting overall confidence levels.

16/09/2014 12:55Sydney, Australia. 16 September,2014
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