- Deloitte Access Economics says federal budget repair is underway thanks to higher taxes.
- The return to surplus is mostly the result of more tax collected rather than restraint in spending.
- Deloitte projects continuing outperformance versus official revenue forecasts in both 2017-18 and 2018-19.
Better corporate profits, with a subsequent flow of tax dollars, will push the federal budget bottom line to better than official forecasts by $7 billion this financial year, according to analysis by Deloitte Access Economics.
The budget monitor report sees the bottom line better than the official forecasts released in late 2017 by $7 billion this financial year, and then by a further $7.2 billion next year.
That translates into underlying cash deficits of $16.6 billion in 2017-18 and $13.3 billion in 2018-19.
“The Rivers of Gold are running again, with the global and Australian economies doing the Budget plenty of favours,” says Chris Richardson, the author of Budget Monitor.
“It’s an almost picture perfect backdrop for the taxman — not only are there more dollars in the economy than Treasury forecast, but companies and super funds have also increasingly run out of the losses they racked up during the GFC, meaning that good news on the economy is being turbocharged in terms of its effects on the tax take.
“That’s why recent months saw a humongous improvement in the Budget.”
In the four months to February, the rolling annual cash deficit shrunk by $15.4 billion, a pace of improvement only seen twice before in the history of the Budget.
Most of the return to surplus is from tax collection rather than spending restraint, as this chart shows:
Richardson says profit taxes are generating two-thirds of the revenue revision, driven by China and higher commodity prices. Many super funds have also used up all their GFC tax losses.
Deloitte Access Economics forecasts overall revenues to grow by 9.8% in 2017-18, the strongest such increase seen since 2000-01, followed by a further 5.7% gain in 2018-19.
Total revenue in 2017-18 is forecast to beat official forecasts by $7.6 billion. That’s followed on in 2018-19, with revenues to outperform official forecasts by an additional $6.7 billion.
Budget leaks so far shows infrastructure spending is on the agenda again.
“On the spending front the dollar dazzlers being leaked to the tabloids include $5 billion for a Melbourne Airport rail link and another billion for upgrading the M1 Corridor in Queensland,” says Richardson.
Bracket creep is part of the reason why personal tax cuts are on the cards, says Deloitte Access Economics.
Treasurer Scott Morrison on Friday flagged personal income tax cuts in the top income bracketst.
Inflation keeps pushing people into higher tax brackets.
“That’s an ungainly and unfair way to raise taxes, and it’s a key reason why the Government is looking to announce personal income tax cuts in the Budget,” says Richardson.
“But with wage gains stuck in low gear, creep is still crawling.”
PAYG collections in 2017-18 would be $4 billion lower this year had the 2014-15 thresholds been indexed for inflation since then.
Bracket creep advances to $6.3 billion in 2018-19, $8.8 billion in 2019-20 and to $11.6 billion in 2020-21.
“So, unless policy changes, personal taxpayers will fork out more,” he says. “That is simultaneously driving both Budget repair and political pain.”
The budget should be back to surplus in 2020-21.
“Even allowing for new tax cuts, there’s enough economic momentum to see the Budget sneak into surplus in 2020-21,” says Richards.
He forecast a cash underlying surplus that year of $8 billion.
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