Economists doubt Budget Surplus Forecasts

Economists doubt the federal budget will return to surplus because the savings are not large enough and growth forecasts are too optimistic.
The federal government said it would meet its target for a budget surplus in 2012/13 after making new savings worth $11.5 billion over four years to make up for a shortfall in revenue caused by deteriorating global economic conditions.
In its Mid-Year Economic and Fiscal Outlook (MYEFO) published on Tuesday, the government projected a surplus of $1.5 billion for the 2012/13, which was less than its May budget forecast for a surplus of $3.5 billion for that financial year.
Nomura Australia chief economist Stephen Roberts said the surpluses were too small when you considered the deficit blowout of $14.5 billion in the past six months.
"From the budget in May, in six months we've gone from a prospective budget deficit of $22.6 billion, to $37.1 billion (for this financial year)," Mr Roberts said.
"Anything could happen to the 2013/14 budget because the latest estimate the budget surplus for 2013/14 is only $1.9 billion.
"There's significant risks we could have a pretty sizable deficits persisting in 2012/13 and 2013/14."
JP Morgan chief economist Stephen Walters said cuts in spending to return the budget to surplus could hurt the economy.
"A more than plausible case can be made for the government to let the budget remain in deficit, as insulation against an even deeper global downturn and exaggerated weakness in the domestic economy," Mr Walters said.
"As far as government officials are concerned, though, the politics argue against this.
"On today's evidence, the government will be tightening fiscal policy materially as the economy weakens.
"Cutting spending now carries significant risks; the cuts could, for example, undermine already fragile consumer and business sentiment," he said.
Federal Treasury also cut its forecast for gross domestic product (GDP) growth from four per cent to 3.25 per cent in 2011/12.
RBC fixed income and currency strategist Michael Turner said the forecasts appeared too optimistic.
He said RBC's GDP growth forecasts were significantly lower, at 2.6 per cent for 2011/12.
"We doubt the government will be able to deliver such rapid fiscal consolidation in one year," Mr Turner said.
"We do, however, expect that the attempt will still provide a material contractionary fiscal pulse. With growth prospects having worsened over the course of this year."
CMC Markets chief market strategist Michael McCarthy said the budget statement seemed to reveal dampened expectations for growth.
"There's also a concern here that this has been a bit of a weak reaction - that the $11.5 billion cuts over the next four years ... could be withdrawing stimulus at a time when fiscal stimulus is an important part of the overall economic equation," he said.