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Asia Economy Last Updated: Dec 18, 2013 - 7:48 AM

Australia facing budget deficits; Tax cuts off agenda for a decade
By Michael Hennigan, Finfacts founder and editor
Dec 17, 2013 - 8:11 AM

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Joe Hockey, Australia's federal treasurer, today published the Mid-Year Economic and Fiscal Outlook report - - a snapshot of the economy at the half-way point of the financial year - - and it revealed a revenue shortfall of A$16.8bn for the year contributing to a deficit in June 2014 that is expected to reach $47bn or 3% of GDP.

"The budget never gets back to surplus even if there are no tax cuts for the next 10 years. That's the most telling table,'' Hockey told the National Press Club.

GDP growth of 2.5% is expected this year and next.

The jobless rate is currently 5.7% and is expected to rise above 6%.

After 22 years of continuous growth, the IMF forecasts the gross debt GDP ratio at 29.1% in 2014 and net debt at 14.5%.

Chinese demand for resources such as iron ore has eased and the Aussie dollar has fallen back from above parity with the US dollar, which had hurt the manufacturing sector.

General Motors, the US car giant, announced last week that it would end car manufacturing in Australia by 2017, and it said that since 2001, the Aussie dollar has risen from US$0.50 to as high as US$1.10. It is at US$0.89 today.

It costs an extra A$3,750 a car to build vehicles in Australia compared with other plants in the region.

The industry directly employs 50,000 people while economists have estimated that 90,000 in total would lose their jobs if all car manufacturing was to end.

Morgan Stanley has forecast that Australia will become the world’s biggest liquefied natural gas (LNG) exporter by 2017. This will help the country end 40 years of current account deficits.

“Liquefied natural gas (LNG) exports from Australia could be the next big thing,” The Telegraph cited the report as saying.

According to the research, the county is expected to experience a “huge ramp-up” in LNG output, pushing Australia to top of the list of LNG exporters, leaving Qatar behind by 2017. That pace of development, coupled with coal exports, will make the country a major force in global energy production.

“The ramp-up would be enough to see Australia record a current account surplus in 2015, the first since the second quarter of 1975. It is difficult to overestimate the long-term structural importance of this industry to Australia,” said Morgan Stanley's East Asia expert, Geoffrey Kendrick.

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