Mid year budget report shows our economy struggling

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THE Federal Budget is being starved of revenue and won’t be nourished enough by improving commodity prices.

Thats the tough message from Treasurer Scott Morrison as he prepares to deliver a critical midyear report on the state of the Budget a week before Christmas.

And his alarm today is backed by a report from consultants Deloitte Access Economics, that the Budget deficit will blow out by $24 billion over the next four years.

This means the projected surplus by 2020-21 is unlikely to be delivered.

Mineral exports are the only bright spot for the Federal Budget, but thats not going to save you from substantial spending cuts.

The Government is hoping the prospect of rising iron ore prices, for example, will help rescue the Budget from sinking tax takes from low-growth wages and profits.

But Treasurer Morrison today is warning improved commodity prices wont remove the need for spending cuts and business tax reductions.

He will use the final two weeks of the parliamentary year, which begins today, to argue for business tax cuts worth some $50 billion over 10 years, and which Labor and the Greens oppose.

The government is expected to highlight support for corporate tax cuts given by Opposition Leader Bill Shorten when he was Assistant Treasurer and supporting what now is the Coalition line.

Cutting the company income tax rate increases domestic productivity and domestic investment, Mr Shorten told Parliament in 2011.

More capital means higher productivity and economic growth and leads to more jobs and higher wages.

Labor today added to concerns by warning the nations AAA credit rating was at greater risk.

The May Budget had a deficit three times the shortfall inherited by Labor, shadow treasurer Chris Bowen and shadow finance minister Jim Chalmers said in a statement today.

It is time for this government to take responsibility for the state of the books and stop pointing the finger at everyone else for their failings, they said.

Mr Morrison is today using the warning from consultants to prepare for substantial spending cuts.

The Deloitte report echoes the comments I have been making for some months by rightly drawing attention to the impact of lower growth in wages and profits growth on government revenues, the Treasurer said in a statement today.

The report also correctly puts in perspective the impact of recent commodity price movements on budget revenues.

Mr Morrison said the commodity prices were looking better and that movements in iron ore revenue are consistent with levels incorporated into the 2016-17 Budget, that Labor criticised as being unrealistic.

As already flagged, the government will be adopting a cautious approach to commodity price assumptions in MYEFO and agrees with Deloitte that commodity price impacts are being offset by wages and inflation outcomes, he said.

The goal of our national economic plan outlined in the Budget is to lift what Australians are earning from their wages and their businesses, not tax them more, as Labor propose to do.

That is why our enterprise tax plan is so important. You cant expect businesses to earn and invest in providing more hours of work per week for their employees when you are demanding that they keep paying higher taxes.

The early rally in the markets is now watered down, but the mining stocks still being helped by higher nickel and iron ore prices.