Fiscal outlook shows rapid improvement to reach a surplus by 2020.
Nevil Gibson discusses the Aussie budget in his latest Editor's Insight on NBR Radio, and on-demand on MyNBR Radio.
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The deficit in the underlying cash balance for the 2016 year has been widened to $A35.1 billion (2.1% of GDP) from $A31.2 in the December update estimate, a rise of $A3.9 billion.
Citi says this is the result of the fall in key commodity prices such as iron ore lowering government receipts, low wages growth affecting income tax receipts and an increase in some spending.
This is narrower than the market’s estimate of $A40 billion. The forecast deficits out to 2018 are also wider when compared to the December estimate, also reflecting write-downs to receipts and more spending.
Policy recycling helps with the bottom line
Payments have not increased by as much as receipts have fallen over forward estimates. This reflects the redirection of previously costed funds.
One example is the scrapped Paid Parental Leave Scheme and associated company tax cuts. Funds from this programme have been directed to other initiatives and means that the cost of new budget policy measures is lower than it would otherwise be. To some extent this flatters the headline result.
There is also a political motive behind the wider deficits
The budget’s main goal is different to last year’s effort. Whereas that was designed to curtail expenditure growth amid cries of a budget emergency, this year’s effort is focused on re-engaging with disenfranchised voters.
Big ticket items designed to win back support are in small business and childcare, no doubt crafted with an eye to the next federal election, which is likely to be held in the second half of 2016.
Yet the government maintains a return to budget surplus by 2020
The deficit is projected to improve more rapidly in 2019 to just $A6.9 billion (0.4% of GDP). What looks like being a very small surplus in 2020 comes from the recycling of old costed policies and cuts to spending in other programmes further out in the forward estimates.
The government could claim that it hasn’t abandoned the task of fiscal repair but it is leaving little room for error. Another downward revision to receipts or requirement for more expenditure would push the fiscal repair task out further into the future.
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See more NBR's coverage of the Australian Budget 2015 here:
Australian budget: Deficit widens to $35bn, surplus by 2020
Australian budget: Winners and losers
Australian budget: What a difference a year makes
Australian budget: Hockey details ‘Netflix tax’, ‘Google tax’
Australian budget: What the experts say
Editor's Insight: Joe Hockey's 'have a go' budget
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