Climate Change Minister, Greg Combet, announced yesterday that the Federal Government will defer indefinitely $1.4 billion in tax cuts which were set to be introduced in 2015 to compensate for the carbon price.
These cuts were to be achieved in 2015 by lifting the tax-free threshold from $18,200 to $19,400 and to be funded by revenue raised from the carbon tax. Original modelling for the carbon tax was based on a forecast of $29-per-tonne for the price of carbon by 2015-16, but with the European price crashing to below $5 per tonne, this figure has been revised down to $15 leaving the Federal Government scrambling to fill a $3 billion revenue void.
While the tax cuts have been deferred and not scrapped, Fairfax newspapers are reporting that Mr Combet said the tax cuts will be reinstated once the international price of carbon passes $25.40, which doesn’t look likely in the foreseeable future.
This announcement comes just days after the Finance Minister, Penny Wong, confirmed the Federal Government would not go ahead with the promised boost in family payments under Family Tax Benefit (A).
Just days out from the Federal Budget, the Federal Government has been embarassed by another promise broken as a result of irresponsible modelling.
With the Federal Budget to be released next Tuesday, one can only imagine the panic in the Labor ranks around the country, with Wayne Swan counting the numbers and suggesting last-minute measures to make the books look more respectable. This panic is a direct result of a $17 billion shortfall in revenue due to errors in Treasury modelling.
Taking a look back at the $29-per-tonne forecast for the price on carbon as a prime example, there is nothing conservative about this prediction. From January 2008 when the European price on carbon was trading at over €20 per tonne, the markets saw a small rise and then a consistent fall in the price, trading at just €6.76 per tonne in December 2010 and hitting a record low of €2.81 in January 2013.
How can the ‘experts’, i.e. Treasury and the government of the day, get it so wrong? If we look back to May 2010, Wayne Swan promised to bring the budget into surplus by 2012/2013. He continued to tell this story alongside Prime Minister Julia Gillard until just five months ago when they realised attempting to have a surplus for the sake of a surplus was irresponsible and totally unrealistic.
I am involved in modelling of budgets for online marketing campaigns for YOURLifeChoices and when I present my figures for campaign approval, I submit three versions. A conservative figure (one which I know can be achieved under any circumstances), an expected figure and a best-case figure. Perhaps the government should take a page out of my book and start with realistic modelling, otherwise we may find ourselves in a similar position in 12 months time.
Do you think the current Federal Government can manage a budget? Are they over-promising and under-delivering?