Australian government faces budget dilemma

http://www.bbc.co.uk/news/world-australia-32639815

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As Australian Treasurer Joe Hockey prepares his second budget, the Australian government faces some hard choices.

Last year's budget - which aimed to slash education funding, increase health care costs and strip benefits from young, unemployed Australians - was rejected by the public. A year later, voters remain sceptical of the need to cut government expenditure.

What dilemmas does the treasurer face?

Growth in traditional sources of revenue, such as personal and corporate income tax, has slowed because of a weakening economy.

But far bigger is the hole ripped out of budget finances by a slump in mining royalties.

Last month, Mr Hockey warned he was preparing to write off up to A$25bn ($20bn, £13bn) in budget revenue over the next four years thanks to the slump in the price of iron ore.

The other problem is that the government has promised it would not increase taxes. That leaves it few options if it wants to rein in its ballooning deficit.

That has left the budget looking like a horror story "written by Stephen King and painted by Edvard Munch", says respected Deloitte Access economist Chris Richardson.

So, what can be done?

There have been a variety of suggestions from experts, including:

What won't be in the budget?

What can we expect?

The budget's centrepiece will likely be a package that leaves subsidies for wealthy families intact and offers more to poorer families.

The "losers" could be lower income families who don't work, who will be entitled to fewer hours of subsidised childcare, and single-income families who will lose family tax benefits.

Meanwhile, small business will likely benefit from a 1.5% tax cut.

Other savings could come from:

What are the experts worried about?

"At the moment, the Treasurer is ruling a lot of things out," says Access Economics' Mr Richardson. "But that creates spending problems down the track. At budget time there are many sacred cows. But over the next decade, many cows may end up slaughtered to raise revenue."

At least Mr Hockey didn't receive the kind of advice his opposite number in the UK did in 2010, when the former Treasury Secretary Liam Byrne left a note for his Conservative successor saying: "I'm afraid to tell you there's no money left."