Treasurer Joe Hockey has handed down his first budget.
It includes huge spending cuts, a massive infrastructure package and sweeping changes to welfare.
Together with the other measures such as tax increases, it is designed to eventually bring to budget back to surplus.
And, as this chart from the UBS economics team shows, it doesn’t waste any time.
It outlines a faster pace of fiscal improvement than the Commission of Audit, or the mid-year review.
The commission handed down its report a few weeks before budget night. The “razor gang” were tasked with finding savings to eventually bring Australia’s national accounts into the black.
Some of the proposals were quite radical and wouldn’t have gone down well with voters. The Government was never going to adopt every single one of them.
This is significant because, as the chart shows, Joe Hockey’s budget brings Australia on to the path of fiscal repair quicker than the audit predicted and faster than the projections contained in the MYEFO.
The commission didn’t have to worry about the political ramifications of its proposals and Hockey still managed to beat it on speed — which is achieved through cuts.
In the lead up to the budget release, the severity of the cuts early on (2014/15) was something people were worried about.
Too many early cuts could derail the economy, which is still undergoing a fragile recovery, and economists such as AMP Capital’s Shane Oliver described this as one of the biggest risks in the lead up to the budget.
Though as UBS’ Scott Haslem and George Tharenou note, this has been taken into account, with most of the major policy measures not kicking in until after 2015:
The budget has also taken the relatively sensible macro decision to tighten policy less now, and more later, given the economy’s only moderate recovery. Indeed, with much of the tightening in 14/15 due to ‘parameters’ rather than ‘policy’, we judge the additional fiscal drag to be just 0.1%pt. Together with the ¼%pt already in the numbers, a net drag of less than ½%pt of GDP seems unlikely to derail the moderately improving economy.
As a result of all the measures unveiled last night, as the chart below illustrates, Australia should have a surplus by the beginning of the next decade.
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