The federal government will cut bulk-billing incentives for pathology services and ratchet up its welfare crackdown as the first budget update of the Malcolm Turnbull era revealed the deficit had blown out by $26bn over four years.
The midyear economic and fiscal outlook (Myefo) shows total revenue will be $33.8bn lower than expected over four years, partly as a result of declines in commodity prices since Joe Hockey handed down his final budget in May.
Economic growth has also taken a hit, with the treasurer, Scott Morrison, predicting a lift in real GDP of 2.5% this financial year, compared with 2.75% forecast in the budget. The government has also cut half a percentage point from the expected figure in each of the next few years, with growth now tipped to be 2.75% in 2016-17 before firming to 3% after that.
“The inclusion of this more realistic outlook on domestic growth should be seen for what it is; that is, a statement of confidence in our economy,” Morrison said as he joined the finance minister, Mathias Cormann, in Perth on Tuesday to announce the new figures.
Morrison pointed to improvements in the forecast unemployment rate, which has been revised down from 6.5% to 6% this financial year and is expected to fall to 5.5% by 2018-19.
The government is continuing its budget rule of not cutting to make up for revenue write-downs, but has found offsets for new spending announced since the last budget such as the innovation plan and $909m for the increased refugee intake.
The new cuts in the health portfolio include $650m over four years from changes to bulk-billing incentives, $595m from “streamlining” health workforce programs, and $472m from adjusting aged care funding formulas.
The government says it will remove incentives for pathology services and reduce the incentive for MRI services. It says it will align incentives for diagnostic imaging services to the ones that apply to GP services, with incentives continuing to apply for patients with concession cards and children under 16.
Morrison is also banking on $1.3bn by expanding the welfare payment integrity measure announced in the last budget, which was already slated to achieve $1.7bn.
The government says the new measure will focus on recovering money from a greater number of people where discrepancies exist between the employment income they declare to Centrelink and the “pay as you go” information provided to the tax office.
A further $695m is to be saved from the welfare system by increasing other forms of data-matching. The government will also gain $318m from a new cap on the number of green army projects.
Myefo also reveals the China-Australia free trade agreement will cost the budget $4.2bn over four years as a result of reductions in tariff revenue.
Cormann said the government had already made a provision in the budget for that, but argued the benefit would be reciprocated to Australian businesses exporting to China. The Myefo document said the government had decided not to offset the revenue impact of free trade agreements.
Myefo represented the first major test for the new financial team installed after Turnbull ousted Tony Abbott from the top job in September on the grounds the country needed better economic leadership.
The underlying cash deficit is expected to be $37.4bn in 2015-16, a deterioration from the $35.1bn estimated at the time of the budget. The expected deficit increased from $25.8bn to $33.7bn in 2016-17, increased from $14.4bn to $23bn in 2017-18, and increased from $6.9bn to $14.2bn in 2018-19. The new figures represent a cumulative hit to the budget position of about $26bn over four years.
The government is now projecting a return to surplus in 2020-21, one year later than tipped at the time of the last budget.
Morrison and Cormann said the government was not rushing back to surplus because extreme measures “would place a handbrake on household consumption and business investment growth and unnecessarily threaten the fresh new momentum emerging in our transitioning economy”.
The treasurer said: “Despite revenue writedowns of almost $34bn caused by falling commodity prices, a declining terms of trade, weaker global growth and the adoption of more realistic domestic growth outlook, we continue patiently and responsibly on the path to budget balance.”
Morrison stressed it was “a budget update, not a budget” so bigger changes would be considered in May and in the lead-up to the federal election. Decisions on tax changes have also been deferred until next year.
The Labor leader, Bill Shorten, said the government’s budget was “on a road to nowhere with no prospect of improving”.
“Instead of looking at multinational taxation, or superannuation tax concessions, the Liberals are at it again. They are proposing the harshest cuts to the people least able to protect themselves,” he said.
The shadow treasurer, Chris Bowen, said Turnbull and Morrison had “presided over a budget deficit blowing out at the rate of $120m a day since the last budget”.
Bowen said: “Deficit reduction and returning to surplus was at the heart of this Liberal government, and it begs the question: if they have no plan to return to balance, what is the point of the Turnbull government?”
The Greens MP Adam Bandt said Morrison was following Hockey’s lead by “taking the axe to the old, the sick and the poor while letting the very wealthy off scot-free”.
