The federal government is doggedly sticking to its plan to bring the budget back to surplus in 2012/13, despite new Reserve Bank of Australia (RBA) forecasts suggesting revenues will be somewhat lower than anticipated just a few months ago.
The central bank in its latest quarterly statement on monetary policy released today slashed its economic growth forecast for this financial year, as well as predicting a more moderate inflation outlook, and a key factor in it cutting the cash rate this week.
At the same time, it warned that the largest risk to its forecasts is the sovereign debt and banking problems in Europe.
"The Bank's central scenario continues to be one in which the European authorities do enough to avert a disaster, but are not able to avoid periodic bouts of considerable uncertainty and volatility," it says.
"A worse outcome in Europe would adversely affect the Australian economy."
For 2011/12, the RBA is now expecting gross domestic product (GDP) growth of 3.25 per cent rather than the 4.0 per cent it had predicted in August, while for 2012/13, it now forecasts GDP of 3.25 per cent rather than 3.75 per cent.
"What it means is that we will have less revenue than we expected when we did our budget forecasts back in May," Acting Prime Minister and Treasurer Wayne Swan told reporters in Sydney.
"But the government is determined to bring the budget back to surplus in 2012/13 as planned."
Mr Swan said the government would update its forecasts before the end of the year, when it releases its mid-year budget review.
He said revenues will have been affected by the significant hit to the share market and confidence from recent events in the global economy.
"The failure of the Europeans to sort out the sovereign debt crisis ... has been impacting on the global economy for some time now," Mr Swan said.
"We need these matters sorted out as quickly as possible."
There was another twist in the Greek debt crisis yesterday with its Prime Minister George Papandreou now abandoning his plan to put a European rescue deal to a referendum, and an idea that rocked financial markets earlier in the week.
Local and regional share markets were stronger today.
Prime Minister Julia Gillard, in the French resort city of Cannes for the G20 summit, received strong backing from world leaders for bolstering the resources of the International Monetary Fund (IMF) to shore up the uncertain global economy.
She was also confident that the G20 would come up with an action plan for Europe.
"If we don't stabilise the global economy and get it back on the path of growth that will cost jobs," she said, adding that while the Australian economy is strong and resilient, it is not immune from the global economic circumstances.
Back in Melbourne, Opposition Leader Tony Abbott said while the coalition supported the IMF, he reiterated Australia must not get involved in the eurozone bailout unless Europe does all it can to get its own house in order.
"To the Australian public it's going to look like Australia is putting up $5 billion more so that Greeks can keep retiring at 50," he told reporters.
