In the Australian Financial Review (gated) overnight, reports that:

The federal government faces a forecast revenue shortfall of more than $20 billion over the next four years, prompting a robust internal debate about whether the budget razor gang should make cuts to offset all the losses or delay the surplus yet again.

  • The Expenditure Review Committee is looking for savings measures
  • Treasurer Bowen wants to release an economic statement before an election is called

(Note, 10 days into the campaign treasury will release its “pre-election ­fiscal outlook (PEFO)”)

Labor reels from $20bn budget hole

Its looking like the return to surplus will be delayed – further expenditure cuts to accelerate the return the surplus (should these occur) will be an important consideration for the RBA at their policy meeting on August 6. Further expenditure cuts (should they occur) increase the chances the RBA will cut at this meeting (at this stage I don’t think there will be a cut on August 6). The OIS market is currently pricing in a 70% chance of a 25 basis point cut on August 6.