THE Paris-based Organisation for Economic Co-operation and Development will press the government to loosen its commitment to a budget surplus, delivering a 160-page report that will set out the case for allowing the budget to wear the consequences of any further significant economic deterioration.
The revenue forecasts in this year's budget were built around nominal GDP growth of 5 per cent, knocked down to 4 per cent in the mid-year review. But new growth figures not available at the time show nominal GDP inching ahead at an annual pace of 2 per cent, a rate that if sustained would wipe at least $5 billion from projected revenue, more than obliterating the wafer-thin $1.1 billion promised surplus.
The OECD will say in the event of a further big turndown the authorities should ''let the automatic stabilisers work and should slow budget consolidation''.
''Automatic stabilisers'' are the changes that automatically weaken the budget as the economy turns down, cutting tax collections and in some cases boosting welfare payments.
Trying to stand in their way by boosting tax collections or cutting payments runs the risk of slowing the economy further.
The OECD made the point in a three-page summary of its views about Australia, released as part of a global survey last month. It said while the current policy settings were appropriate, the government had room to delay the surplus to respond to risks. The International Monetary Fund concurred, noting in its own report that authorities had ''scope to delay their planned return to surplus'' should the outlook deteriorate sharply.
Both organisations consult closely with the Treasury while visiting Australia, and their findings are often believed to reflect the views of the Treasury.
The government has been hoping the next set of economic growth figures due on March 6 will show an improvement. It has reactivated its expenditure review committee and asked public servants to search for fresh spending cuts in the lead-up to Christmas.
But at the same time Treasurer Wayne Swan has been careful to avoid repeating earlier cast-iron commitments to a surplus, instead saying that the budget must also be ''appropriate for the economy and jobs''.
Speaking to Fairfax Media in India on Thursday where he was concluding a trade mission, Mr Swan refused to be drawn on the question.
Former Reserve Bank board member Bob Gregory told Sky News on Thursday the budget would not and should not get back into surplus this year.
''The surplus target was never really appropriate. If it was appropriate a year or so ago it's certainly not appropriate now,'' he said.
''Looking forward, things are moving downwards, and when things are moving downwards you don't want the government to help that process along - if anything you want them to slow the process.''
With BEN DOHERTY, NEW DELHI
The story Time to loosen up on budget surplus, OECD urges Swan first appeared on The Sydney Morning Herald.