Budget may 'sink into deficit'

[costargh]

Speculation budget sinking into deficit
Sun Oct 26 2008

The federal government is unable to forecast if next year's budget will stay in surplus or sink into deficit as the world economic crisis takes hold.

Finance Minister Lindsay Tanner said the government aimed to keep the 2009-10 budget in surplus, but he could not say if that would be possible.

"It's been pretty easy for governments to have surplus budgets in the last five to seven years because of the mining boom and the money coming in from China," he told Network Ten on Sunday.

"It's quite a bit harder now, we don't know how hard it will get.

"I'm not going to speculate about what the specific outcome in one particular budget might be, nine months out from when it takes effect."

Mr Tanner was confident this year's budget would remain in "healthy surplus", and hoped for the same outcome in 2009-10.

"We would also be aiming for a budget outcome for the (2009-10) financial year of healthy surplus," he said.

Mr Tanner said the government's plan was to keep the budget in surplus over the course of the economic cycle, but did not rule out sinking into deficit at some stage of that cycle.

Meanwhile, authorities are working to fix the problem of frozen investments in non-bank fund management companies, the government says.

Investment management funds and mortgage funds have frozen billions of dollars in funds because of a flood of redemptions following the government's decision to guarantee deposits only in banks.

Respected institutions like Challenger, Perpetual Investments, ING, Axa Asia Pacific and Australian Unity, among others, have all been forced to suspend redemptions by freezing some $11 billion in deposits.

The opposition accused the government of making policy on the run and blamed its initial decision to guarantee bank deposits without any cap on amounts for the escalating crisis in non-bank institutions.

However, the federal government late on Friday imposed a $1 million voluntary threshold on the deposit guarantee and announced some other measures in a bid to ease the situation.

It also said on Sunday that while the funds had frozen the lump sum investments, regular income streams were still being paid.

Mr Tanner said Treasury was working with the Australian Securities and Investments Commission (ASIC) to see what more could be done to get the situation back to normal.

He backed Treasurer Wayne Swan's comment that people who had found their savings frozen should seek help from Centrelink.

"I understand that there are some snobbish elements in the Liberal Party that shudder and shake whenever they have to utter the word Centrelink," Mr Tanner told Network Ten on Sunday.

"But the truth is that a very large proportion of Australians ... do access entitlements through Centrelink."

Assistant Treasurer Chris Bowen moved to reassure investors, saying while funds had frozen their lump sum deposits, regular income streams were unaffected in most cases.

Where income streams had changed, it was probably only a temporary measure, he said.

"Even in those cases there's no indication of course that this is an indefinite or permanent freeze," Mr Bowen told Sky News.

He also defended Mr Swan's Centrelink call.

"There's no shame in going to Centrelink," he said.

The opposition slammed the government's handling of the bank deposit guarantee after Mr Swan altered the scheme to include an insurance fee on deposits over $1 million in response to a flight of capital into banks.

The opposition accused Mr Swan of an "inept performance".

Opposition treasury spokesman Julie Bishop said last week the government had bungled the guarantee.

But Mr Bowen defended the government's performance.

"The government's handled this issue particularly well all the way through," he said.

He said the government's decision to change the scheme was in response to emerging circumstances.

The government had acted flexibly in response to "hourly developments", Mr Bowen said.

http://news.ninemsn.com.au/article.aspx?id=653578

[Eriny]

The government probably won't benefit from as much tax money from the mining industry this year. I don't see why the budget has to be a deficit though, inflation is still high.