FEDERAL BUDGET – SMALLEST DEFICIT IN A DECADE
By Denise Slattery
The government has recently announced the Australian Federal Government’s Budget outcome for the 2017/18 Financial Year.
The budget deficit reduced for the 2017/18 Financial Year to $10.1 billion, representing 0.6% of Gross Domestic Product (GDP). This is an improvement on the forecasted budget of $18.2 billion four months ago, when Scott Morrison delivered the May Federal Budget.
The budget deficit continues to shrink, with a return to budget surplus very much a focus for the government, sooner rather than later.The deficit figure is hardly surprising as our unemployment rate remains low – more Australians have jobs which boosts tax revenue, company profits are at record highs, further boosting tax revenues and government spending has been restrained, increasing by just 3%.
Regarding economic outcomes, movements in receipts, expenses and assumptions made, the Government noted the following:
- Real GDP grew by 2.9% in 2017-18, slightly stronger than the 2.75 % growth forecast in the 2017-18 Budget. Growth in consumption, non-mining business investment and public final demand was stronger than expected, while the detraction from mining investment was smaller than expected. These positive impacts were partly offset by dwelling investment and net exports which detracted from growth.
- The Final Budget Outcome for 2017-18 was a $19.3 billion improvement compared with the underlying cash deficit estimated at the time of the 2017-18 Budget. Total receipts were $13.4 billion higher than expected, and total payments were $6.9 billion lower than expected.
- Company tax receipts were $6.8 billion (8.7 per cent) above the 2017-18 Budget estimate, consistent with higher than expected growth in corporate profits and stronger than expected results from ATO compliance activity.
- In terms of payments, there was an underspending on the National Disability Insurance Scheme ($2.5 billion), payments to the States ($1.3 billion), Age Pension ($894 million) Family Tax Benefit ($790 million), assistance to people with disabilities ($748 million)
The Government is currently assuming a budget deficit in the 2018/19 Financial Year of $14.5 billion or 0.8 per cent of GDP. These estimates are seemingly too high and will be revised in the Mid Year Economic and Fiscal Outlook Review delivered in November/December.
The budget outcome should provide Australians with improved confidence regarding the state of our economy. Ratings agency, Standard and Poors has greater confidence in the Australian economy, recently upgrading the outlook for Australia’s risk rating from “negative’ to ‘neutral” , with Australia now a very solid AAA-rated country.
If business and consumers have the confidence to spend, invest and employ then the economy will continue the current momentum it is experiencing. Whilst the Budget is in a reasonable position, there is a risk that both the Coalition and Labour governments will be tempted to ramp up the spending promises coming into an election year.
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