Australia to suffer a long string of budget deficits: Moody's Analytics

It recently revealed the 2013-14 budget.

According to Moody's Analytics, on Tuesday, Australian Deputy Prime Minister and Treasurer Wayne Swan introduced the fiscal year 2013-14 budget, which projects budget deficits through the 2014-15 fiscal year, a change from the government’s previous projections of surpluses beginning in the current fiscal year ending 30 June.

Here's more from Moody's Analytics:

Although this is a credit-negative development, we expected it and the projected deficits are relatively small as a percentage of GDP. As a result, the ratio of government debt to GDP will rise only marginally before beginning to decline, and Australia will remain among the few Aaa-rated sovereign debt issuers with a low level of debt.

Australia’s main vulnerability remains its dependence on external capital markets for finance, but this is not a major risk to the government’s financial position unless global capital markets turn against Australian borrowers.

Although the government originally targeted a budget surplus in the current fiscal year, this goal was clearly not within reach owing to lower commodity prices and their effects on corporate profits and resource rent tax revenues.

Although these factors are not new, they now appear to be a structural deficiency in the government’s revenue base. The Australian government transfers sales tax revenue to the states and is therefore left with revenues coming from individual income taxes, corporate taxes and other items, including the resource rent tax.

Some revenue measures in the budget, such as an increase in the medicare levy, were meant to partially offset this shortfall.

The government structured the corporate tax and specific taxes related to the mining industry so that they depend to a high degree on commodity prices and the resultant profits of mining companies.

The government estimates total revenues from these taxes are AUD16.4 billion less than the original forecast in the government’s budget for 2012-13 because commodity prices have fallen and the exchange rate has remained elevated until recently. The budget’s forward estimates also include significant downward revisions to projected revenues in the 2013-14 fiscal year.