- The federal budget position is around $9 billion better than the government’s own forecasts made five months ago.
- It’s largely due to very strong revenue from company taxes, helped by strong commodity prices.
- While some caution is needed on the figures, the improving outlook gives politicians on both sides room to adjust their spending plans ahead of the next election.
A surge in company tax receipts is driving an astonishing improvement in the Australian government’s budget bottom line, with official data showing the fiscal position is some $9 billion better than expected just five months ago.
Figures released last week showed the underlying cash balance sat at a deficit of $10.5 billion. The budget, delivered in May by then-treasurer Scott Morrison, projected a deficit of $19.5 billion at this point.
Although the figures need to be treated with caution as the position could change dramatically through major capital outlays and variations in expenses or revenue from month to month, the improvement in company tax receipts appears sustained and clears the way for a significant update on the nation’s fiscal position come the mid-year fiscal update in December.
With an election due in May next year there is also scope for the major parties to propose significant policy overhauls with changes to their spending plans.
The May budget projected a deficit of $14.6 billion for this full financial year, with a small surplus to follow in 2020.
Here’s a look at some of the numbers.
September saw a gap between revenue and expenses of around $10 billion. The budget projected this gap would be $20 billion. Strong receipts, low payment and a bit of help from the capital investment line and Future Fund leaves a vastly improved underlying cash balance position.
By this point in the financial year, Treasury expected to have gathered $17.5 billion in company tax. But the figures show $21.8 billion in inflows.
A significant proportion of this is likely due to very strong commodity prices, which are well ahead of the expectations in the budget. More profitable mining companies pay more tax. Taking just iron ore, the budget forecast a $US55 per tonne* price through the year. But here’s what iron ore prices have been doing.
*This is the “free on board”, or FOB, price, which is typically several dollars lower than the spot price, which is shown in the chart.
There’s a challenge for the parties with these figures: the improvement is largely tied to cyclical factors — improvement in company profits and strong commodity prices — so announcing grand ongoing spending plans as a result is unsustainable. However, there is significant scope for new spending plans on various projects over the coming years, just as we’re heading into an election.
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