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Australia is facing years of deficit with a Aus$17 billion (US$15.2 billion) blowout since September elections as the economy struggles to deal with an unwinding mining investment boom, the treasurer said Tuesday.
Joe Hockey said the conservative government had inherited a "simply unsustainable" budget from centre-left Labor and warned that without urgent action Australia would be in the red for a decade, with a deficit of Aus$47 billion this financial year.
"More than half the deterioration in the budget position is due to the softer economy," he said in releasing the new government's first budget update.
"This reflects a sharper-than-forecast fall in resources investment and a slower recovery in the non-resources sectors."
Australia is undergoing a bumpy transition from an Asia-led decade of booming mining investment towards other drivers of growth, with key partner China slowing and easing demand driving commodity prices down.
The update said the transition was "unlikely to be seamless" and would continue over the next four years with "the fall in resources investment expected to be sharper than previously forecast (and) the recovery in the non-resources sector expected to be more gradual".
"Activity in the non-resources sectors has been subdued, with positive signs in those sectors thus far limited largely to the established housing market, above-average measures of consumer sentiment and improving business sentiment," the update said.
"From 2014-15, resources investment is expected to start sharply detracting from growth."
The conservatives had vowed during the election campaign to bring the budget back into the black at least as fast as Labor -- a deadline of 2016-17 -- but this will not happen with deficits totalling Aus$123 billion forecast over the next four years.
The update committed the government to "returning the budget to sustainable surpluses that build to at least one percent of GDP by 2023-24".
"We want to get back to surplus as soon as we can," Hockey told reporters.
"It will require a sustained and fundamental structural overhaul of expenditure. All options are on the table."
Detailed cuts are expected in the May budget.
Hockey said GDP forecasts for 2013 were unchanged at 2.5 percent for the current financial year to June 30 2014, but growth had been downgraded the following year from 3.0 percent to 2.5 percent.
Unemployment was revised down from a peak 6.25 percent to 6.0 percent this financial year, but the forecasts were more pessimistic in the medium term, seen at 6.25 percent in each of the next three years as the workforce aged and younger workers delayed entry.
That contrasts with pre-election forecasts by Labor of 6.25 percent in 2014-15 and 5.0 percent the following two years.
Ratings firm Moody's said the "somewhat worse projections" on growth and deficit were "clearly credit negative" but did not pose a risk to the government's Aaa credit rating.
"The rise in the debt ratios that would result from these deficits, while clearly a negative trend, still leaves Australia in a relatively favorable position compared to almost all other Aaa-rated sovereigns," Moody's said.
Chief among the Aus$17 billion blowout in government spending since September was an Aus$8.8 billion cash injection to the Reserve bank of Australia and Aus$1.2 billion for the government's military-led people-smuggling crackdown.