The full extent of the damage done to the Federal budget by the global slump and the downturn in Asia has been partly shown by figures revealing a $115 billion fall in tax revenue over the next four years.
Given that the Government has revenues of around $300 billion a year, the fall, which averaged over the four years, is just under 10% of total income (not adjusted for inflation).
But its half the annual tax take of the Federal Government.
It must also be remembered that state and local governments will be taking a hit as well with their revenues down.
Prime Minister Rudd said yesterday that the plunge in tax revenues had caused the budget to go into deficit.
He did not say how big the deficit was but promised the Government would release updated budget figures in the next few weeks and not wait until the May budget.
Economists said it could mean a starting point deficit of $15 billion a year for four years, not including any spending on stimulus packages.
Federal Treasurer, Wayne Swan, said company tax revenue was down by $50 billion, income tax down by $13 billion, GST down by $10 billion and other taxes by $2 billion.
Mr Rudd said six of Australia’s top 10 trading partners were in recession and the list was growing.
"There has been a $115 billion fall in tax receipts to the Australian Government," he said at a press conference in Canberra.
In last May’s budget Mr Swan said there would be a budget surplus of $21.7 billion this financial year. That was cut to $5.4 billion in a budget update last November. Now it is in deficit.
Meanwhile house prices in Australia’s eight major capital cities fell again in the last three months of 2008, for a third straight quarterly decline as the collapse of the resources boom hit prices hard in Brisbane and Perth.
The fall wasn’t uniform, it was less in depressed Sydney, while Melbourne, which had a price boom last year, is cooling, while the major resource capitals, Perth and Brisbane, are seeing a fall in prices as the oomph goes out of the boom and a slump takes hold.
The Australian Bureau of Statistics house price index released yesterday showed average house prices in Australia’s capital cities fell by a further 0.8% in the December quarter after a 1.8% drop in the September quarter, which was the worst for eight years.
Economists had expected a 1.0% fall, so there were some who suggested that the 3% in official interest rate cuts may have eased the squeeze.
For the year to December, house prices lost 3.3%, down from a 2.8% gain in the September quarter. Economists had expected 2.4% drop.
The worst hit cities during the quarter were Melbourne (down 1.7%), Brisbane (down 1.2%) and Perth (down 0.9%.) Sydney prices eased 0.3%, while they dropped 1% in Hobart. Darwin prices rose 1.6%, Canberra 0.7% and Adelaide +0.3%.
Over the year, Perth prices fell 6.7% and Sydney and Canberra prices were both off 4.1%. Sydney’s median house price of $503,800 is still the highest in the nation.
Prices fell 3.2% in Melbourne to $381,300 and 6.7% in Perth to $430,100.
Darwin was the only capital city to experience rising house prices in the 12 months to the end of December, rising 3.8% to $437,500.
Still to work its way through the system and into house prices is the new and existing first home buyers grant that started in December.
It is already showing up in housing finance, and could pop up in December building approvals figures from the ABS tomorrow.
The first home buyers grants were part of the Federal Government’s $10.4 billion stimulus package. The government is expected to unveil another stimulus package later today.
The Reserve Bank is expected to cut the official cash rate by 1 percentage point (100 basis points), taking it to an all-time record low of 3.25% in an effort to keep the economy expanding in the face of global recession.
News of a rise in inflation for the first time in four months, won’t stop a rate hack.
Higher costs for holiday travel, utilities and urban transportation prices pushes the TD Securities-Melbourne Institute monthly inflation gauge up 0.8% last month. That was after a 0.2% contraction in December.
"The January result for the inflation gauge is unlikely to discourage the RBA from cutting the cash rate by 100 basis points at its Board meeting tomorrow," Joshua Williamson, senior strategist at TD Securities, said in a statement.
"The increasing severity of the global recession, the pending collapse in business investment in Australia and the prospects for further price moderation strongly suggest that tomorrow’s rate cut will not be the last for this cycle."
The RBA is likely to slash its key interest rate by as much as one percentage point to 3.25% when its board meets tomorrow, according to a consensus of analysts compiled by Bloomberg.
Other economists say it could be 1./25% to 1.5% to a low of 2.75%, simply to maintain an "expansionary monetary policy" which the RBA formally adopted at its December board meeting.
The central bank cut three percentage points from the cash rate in the last four months of 2008 in an effort to keep the Australian economy expanding in the face of a worldwide recession.
For the year the gauge rose 2.7% after the 2.2% rise in December. (No sign of deflation concerns here).
In further gloomy news for the economy, manufacturing activity eased for the eighth month in January.
Australian Industry Group’s performance of manufacturing index gained 2.9 points to hit 36.6 in January, but that was still depressed and well under 50 which separates expansio
