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Strong economy but no budget surplus says Wayne Swan

Treasurer Wayne Swan has warned against expectations of a budget surplus despite the global recession economic recovery as tax receipts continue to be depressed.

Budget Surplus Wayne Swan“But while most people understand the benefits of higher growth and lower unemployment, what is less well understood is the significant lag between the rebound in the real economy and the recovery of government revenues and the budget bottom line that comes with it,” Wayne Swan said in his weekly economic note.

Treasurer Wayne Swan touted his Government’s economic stimulus package as being responsible for improved company profitability, a stronger share market and better employment outcomes despite a global recession. Going on to link the economic stimulus to a rebounding economy which will impact positively on the budget.

Swan said that during the global recession, profits of private, nonfinancial firms fell 16.5%, an equivalent contraction in profits as was seen during the 1990s recession.

“Those lower company profits will continue to weigh on company tax collections, even as the economy recovers,” he said. “That’s because the accumulated losses that built up during the downturn can be used to offset profits made during the recovery.”

“Losses incurred during the 1990s recession were used to offset company profits for at least five years during the recovery that followed” Treasurer Swan said.

Treasurer Swan stayed on message, highlighting the jump in unemployment during the global recession even with Government’s economic stimulus package keeping an extra 200,000 Australians in work. “When average hours worked falls, personal income tax paid on wages and salaries falls by a greater percentage,” said Mr Swan.

Industry analysts are confident the resurgence of demand for commodities especially from China will lead to Federal budget surplus in the next 2 years with the Herald Sun reporting that AMP Capital chief economist Shane Oliver believes Australia is set for “a massive boost to national income” from a near doubling of iron ore and coal prices for BHP Billiton and Rio Tinto, which he tips could help the Budget into surplus by 2012.

Treasurer Wayne Swan is set to announce the 2010/11 budget on May 11.