The Federal Government has all but dumped its promise to deliver a budget surplus this financial year, arguing the move will help protect the economy and jobs in the face of falling tax revenue.
Treasurer Wayne Swan made the announcement after new figures showed a $4 billion write down in cash receipts during the first four months of the financial year.
"Obviously, dramatically lower tax revenue now makes it unlikely that there will be a surplus in 2012-13," he told reporters in Canberra this afternoon.
"It's not because the Government is spending too much, it's because we didn't collect the amount of taxes that we expected to collect.
"If we were to fill a temporary hole in taxation with further cuts, that would impact upon growth and jobs, and that wouldn't be the responsible thing to do in these circumstances."
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The latest financial statements released by the Government today show a budget deficit of $12.3 billion at the end of October, about $2.7 billion worse than where the Government had expected to be at that time.
When the Government delivered the Mid-Year Fiscal and Economic Outlook (MYEFO) in October, it forecast a budget surplus of $1.1 billion for the full year 2012-13.
Mr Swan has declined to speculate on the magnitude of any deficit.
"At the end of the day, I don't care about the political outcomes, I care about the economic outcomes," he said.
At the end of the day, I don't care about the political outcomes, I care about the economic outcomes.
Treasurer Wayne Swan
"And the responsible course of action here in terms of the economic jargon is to let the automatic stabilisers work on the revenue side of the budget."
International credit ratings agency Standard & Poor's says Australia's AAA rating is not immediately affected by the announcement, pointing to the low level of public debt and strong fiscal position.
Despite Labor's consistent promise to deliver a budget surplus, the Coalition has continually questioned its ability to fulfil the commitment.
The Opposition has described today's announcement by Mr Swan as "humiliating" and a "betrayal" of trust.
"This Government doesn't have a revenue problem, this Government has a spending problem," Opposition Leader Tony Abbott told reporters in Sydney.
"You just can't trust this Government to manage the economy and you just can't trust this Government to tell the truth.
You just can't trust this Government to manage the economy and you just can't trust this Government to tell the truth.
Opposition Leader Tony Abbott
"For three years, they've been boasting of this surplus. For three years they've been saying that this surplus was the badge of their economic credibility.
"Well, they don't have it any more."
When the Treasurer handed down the budget in May, he declared that "the surplus years are here".
"This budget delivers a surplus this coming year, on time, as promised, and surpluses each year after that, strengthening over time," Mr Swan told the Parliament.
In July, Prime Minister Julia Gillard said: "Look at our decisive action in the global financial crisis: we saved jobs, stayed out of recession and got back to surplus."
Last month, she said the Government remained "on track" to deliver a surplus in 2012-13.
Shadow treasurer Joe Hockey has accused the Government of "treating the Australian people with contempt" by announcing the policy change just before Christmas.
"They think the Australian people over summer will forget the solemn promises. Well, we will not forget the solemn promises made by Julia Gillard and Wayne Swan," he said.
Many market economists have been urging the Government to abandon its "political commitment" to a surplus this year, and have this afternoon welcomed the change in policy.
"The Government has done the right thing to drop (its) surplus commitment," AMP Capital chief economist Shane Oliver said.
"Undertaking more fiscal austerity just to get a surplus would have been a disaster for the economy."
Undertaking more fiscal austerity just to get a surplus would have been a disaster for the economy.
AMP Capital chief economist Shane Oliver
An international analysis of Australia's economy released by the Organisation for Economic Cooperation and Development (OECD) last week urged the Government to take a flexible approach to the surplus timeline.
There have also been growing calls, including from within Labor ranks, for the Government to push out the timetable for returning the budget to surplus.
Senior Labor MP Joel Fitzgibbon last week argued it would be good for the economy.
But Ms Gillard responded to that comment by pointing to the most recent forecasts which showed the budget going back in the black in 2012-13.
The Greens are urging the Government to increase the Newstart allowance and build high speed rail now that it has walked away from its surplus promise.
"The next budget should stimulate an economy under pressure from the mining boom and an uncertain international outlook," acting Greens leader Adam Bandt said in a statement.
"Unless Labor stands up to big business and fixes the mining tax, an early political surplus would only happen through massive cuts, which would hurt people, small business and the economy."
But Mr Swan is adamant he will not be "loosening the purse strings".