Thread: Federal deficit

Not only the Federal budget John. The state budget over here has also been significantly hit due to the drop in royalties.

Speculation....... is something you can't rely on. Never assume anything for the future. It is not right to factor into a budget, maybes.
With income you can't assume you will receive the same in the future.
Just like a household budget, you rely on your wages every week and say you factor in overtime also, you take on a loan and then in a year down the track your overtime is cut and you don't have the same funds you thought you would have, or you loose your job What then? Your in the poo.

It is a payment that the company knows they will pay to the people for the minerals and other things the general public are entitled to. Tax is very different issue. Tax should be paid on profit etc. Royalty is a different payment. Is the money going to government yes. But it is different. Because you pay royalties does not mean you should not pay tax.

," let's bring in wage restraint", brilliant idea! Say a few bricks

Whoops now we have almost no bracket creep which would have the potential to add around $5 billion a year. Or cover about 1/2 this year's ore loss and cover all the ore loss next year.
Instead here's another idea doing the rounds, let's fully tax super contributions and profits. Fixed this year's deficit in one hit, bugger the next gen and the one after who will need to provide far greater support to pensioners with reduced super.

Originally Posted by Roverlord off road spares

Speculation....... is something you can't rely on. Never assume anything for the future. It is not right to factor into a budget, maybes.
With income you can't assume you will receive the same in the future.
Just like a household budget, you rely on your wages every week and say you factor in overtime also, you take on a loan and then in a year down the track your overtime is cut and you don't have the same funds you thought you would have, or you loose your job What then? Your in the poo.

Budgets are projections...they are the best guess as to what will happen in the future. The budget is a forward estimate. The problem is when the estimate is overly optimistic. Sometimes it is unforeseen and sometimes it can be a deliberate ploy to make the budget look better.


That is why when the expected revenue reduces, expenditure has to be adjusted accordingly. This is a concept many seem to have a problem with and expect expenditure to be spent regardless of the revenue being received.

Originally Posted by boa

It is a payment that the company knows they will pay to the people for the minerals and other things the general public are entitled to. Tax is very different issue. Tax should be paid on profit etc. Royalty is a different payment. Is the money going to government yes. But it is different. Because you pay royalties does not mean you should not pay tax.

The reduced royalties affect the state budget, but not the federal budget. The reduction in price for iron ore means that the royalties reduce in proportion to this reduction.

Since the minerals belong to the state, not the federation (some offshore is federal or shared, but this does not apply to iron ore), the loss to the federal government is almost entirely company tax, which is based on profit (I don't know whether the figures quoted today include loss of personal income tax or flow on from service companies going broke and not paying company tax). And the miners' costs will not have reduced substantially, despite the lower cash flow, so profit, and hence tax will be reduced much more drastically than ore price has reduced. In fact, some of the mining companies can be expected to fail, with projects shut down, resulting in substantial job losses and secondary budget stress for the federal government due to the loss of personal income tax and costs of unemployment relief.

This scenario explains why, from a purely government budgeting point of view, the mining tax was such a bad idea. Even assuming it worked as intended, it would exaggerate the effects of resource price swings on government budgets even more than is happening now, as it was on "excess profits".

John

Have a read of the following you might find it interesting along with a lot of the other articles on that site

Budget deficits “as far as the eye can see” | | MacroBusiness

One spin off will be a substantial adjustment to GST distribution with W.A keeping a larger share. I can hear Tasmania squealing already.