Wayne Swan has ditched his long-held promise to deliver a balanced budget this financial year, saying a ''sledgehammer hit'' to government revenue meant a return to surplus was unlikely without resorting to damaging spending cuts.
After new figures showed tax receipts during the first third of this financial year were $3.9 billion lower than expected, the Treasurer said it would be irresponsible to make further cuts in the quest for a balanced budget.
Mr Swan was unable to say when the budget would return to surplus, and said he did not care about the political significance of walking away from the pledge.
Labor has been promising a surplus in 2012-13 since May 2010, but Mr Swan said the global economic slump and the stubbornly high dollar had sparked a $20 billion write-down to tax receipts in this year alone.
Filling the revenue hole would require further cuts to public spending, Mr Swan said, which risked hurting the economy and pushing up unemployment.
''What we've seen is a sledgehammer hit our revenues,'' he said. ''At this stage, I don't think it would be responsible to cut harder or further in 2012/13 to fill a hole in the tax system if that puts jobs or growth at risk.''
The main hit to the bottom line has come from a sharp deterioration in business taxes. Weaker commodity prices have taken a hefty toll on mining profits, while other industries have been squeezed by the high dollar.
Mr Swan stressed the government had not been loosening its purse strings, with public spending $1.3 billion lower than forecast over the first four months of this financial year.
While economists supported the move, it constitutes a major political backdown. Mr Swan said in 2010 that Labor would deliver a surplus ''come hell or high water'', though in recent months the government has instead referred to a surplus ''plan''.
The Opposition Leader, Tony Abbott, said the decision amounted to a fundamental policy failure, and sought to liken it to Prime Minister Julia Gillard's promise not introduce a carbon tax before the 2010 election.
Mr Abbott said there would be a budget surplus in every year under a Coalition government, but qualified this commitment by saying it was based on current economic figures.
''We will pursue this government every single day until the next election on its failure to deliver a surplus,'' Mr Abbott said. ''This is a government which obviously wants to buy the next election by mortgaging every Australian's future.''
Mr Swan said he had made the decision after consulting Ms Gillard, who is on leave, and was more concerned about doing what was best for the economy than any political backlash. ''If the worst thing that people say is we got the economics right again, but fell short on the politics, well I just say, 'So be it','' Mr Swan said.
With economic growth tipped to slow as the mining investment boom peaks next year, Mr Swan said the government would make a ''thorough assessment'' of the budget in the new year.
Latest forecasts are for a $2.2 billion surplus in 2013-14, but a deficit this year would make such a goal harder to achieve.
Despite the intense political focus on delivering balanced budgets, business groups said it was not necessary to achieve a surplus at any cost. The Business Council of Australia said the move was a realistic reading of the situation, and the Australian Industry Group said pushing for a surplus through tax rises or spending cuts would undermine growth.