China's economy hampering attempts to fix our own: report

CHINA'S downturn is making the Australian Government's task of getting the budget back on track even tougher, a new report reveals.

The latest Deloitte Access Economics budget monitor, released today, said the deflating China boom continued to "wreak revenue havoc" while Canberra added costs of its own.

The report said budget deficits in the four years to 2018-19 look set to be $38 billion more than expected and the bulk of that - 90% - is due to China's economic slowdown.

Budget monitor author Chris Richardson said China's economic slowdown continued to pummel profits, having a significant impact on company taxes and wages.

"China's move from a boom to a tricky transition means much the same is happening to Australian wages," Mr Richardson said.

"Wages outstripped productivity gains through the glory years of the boom but have since dropped to record lows, thereby ensuring revenue write-downs in PAYG collections, the heart of the Australian budget."

Mr Richardson said the "gridlock" in parliament was also making the government's task of budget repair harder.

"The Senate just can't seem to bring itself to pass spending cuts, meaning the big savings from 2014-15 that are still underpinning some of the figures in this year's budget simply won't happen in time for the nation's fiscal finances to keep to its projected savings timetable," he said.

The report said the mix of China's downturn, another drop in commodity prices and weak wage growth cut total revenues by $4.6 billion in 2015-16, with that figure forecast to increase to $8 billion in 2016-17.

"The budget boom of the past decade continues to become a budget bust," Mr Richardson said.

Deloitte Access Economics projected an underlying cash deficit of $40.3 billion in 2015-16, noting this was $5.2 billion worse than expected at budget time.

Assuming no further policy changes, the economic advisory firm projected a cash underlying deficit of $34.2 billion in 2016-17.


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