Searching for the surplus

Your Money editor Anthony Keane. Source: News Limited

MISSING: One Budget surplus. Last seen several years ago. Dearly loved. Reward offered (if we could afford one).

Amid all the talk of new taxes and a tough Budget, many people have forgotten that we are heading for a big Budget deficit.

Put simply, the Government is spending more than it earns.

If households do that continually, bankruptcy is the end result. However, it's different with governments, where debt is good if used wisely to fund nation building and economic growth, and prevent a recession.Governments have a ready supply of money because they can raise taxes.

The big danger is letting government debt and Budget deficits spiral out of control, which can put us on the path of Europe where many countries' economies are stuffed and unemployment is soaring.

Australian economists say a Budget deficit is not dangerous at the moment, and that our debt levels as a proportion of our economy are among the lowest in the western world.

However, it's interesting examining the history of debt and deficit.

When the Howard government came to power in 1996 it took a decade to pay off Labor's debt, with some help from the mining boom.

Since 2007, Labor has dramatically lifted the debt above 1996 levels, although some of it was justified to get us through the GFC.

With the polls predicting a Coalition victory in September, there's a good chance we'll head back to debt reduction mode although tomorrow's Budget is expected to show a black hole where spending exceeds revenue.

Black holes kill household Budgets. Luckily, the Budget can survive them, as long as there are plans to keep a lid on future spending growth.

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Surplus must be key aim of next govt: ACCI

RETURNING the budget to surplus must be the number one aim of whoever wins the September 14 federal election, the Australian Chamber of Commerce and Industry (ACCI) says.

Such remedial action starts with next Tuesday's federal budget, the chamber's chief executive Peter Anderson says.

A survey of 1700 businesses in ACCI's pre-election survey released on Thursday found almost three quarters of respondents see the level of government spending as a major concern.

"Unless the government gets its spending under control, then we will not be able to deliver a surplus," Mr Anderson told reporters in Canberra.

"If we do not deliver a surplus in the out years of this budget we will not be able to invest in the necessary economic and social infrastructure," he said.

Economists generally expect the budget to remain in deficit in this financial year and the next one.

Action needs to be taken to help relieve the rising tide of cost pressures in doing business, with many of those matters within the control of government, particularly when cost pressures arise from red tape, Mr Anderson said.

If you start to fix the problems facing the small business sector in particular, which is feeling the impact of regulation, it will generate growth and activity and make the economy stronger as well as supporting government revenue, he said.

ACCI chief economist Greg Evans said business was calling for lower levels of taxation.

"That's an aspiration at this stage given the current state of fiscal circumstances," Mr Evans said.

"High levels of taxation are weighing on the profitability and confidence levels of Australian business."

In particular, business wants a reduction in company tax, personal income tax and the abolition of the carbon tax. But there are also concerns over aspects of payroll tax and other state transaction taxes.

High labour costs ranked first among the biggest obstacles facing all firms, followed by rising input costs, including energy costs, and then finding labour and government regulations.

A high Australia dollar ranked only tenth.

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