- The federal government will unveil the mid-year budget update today, and it will show a dramatic improvement in the budget bottom line.
- As Business Insider reported just weeks ago, the budget position has been improving at a rapid rate thanks to strong company profits and lower-than-expected unemployment.
- It means the major political parties have more room to move on spending ahead of the federal election next year, although not all of the current gains in the budget are guaranteed to be permanent.
Here come the budget surpluses.
The Coalition will reveal a multi-billion dollar improvement in the federal budget position today, including a doubling of the projected surplus in 2019-20 to around $4 billion.
And this year’s projected deficit will be slashed, likely by at least $5 billion from the previous official forecast of $14.4 billion.
The mid-year economic and fiscal update will show Australia’s budget position is in its best shape in a decade, thanks largely to stronger-than-expected revenues, mainly from company profits and lower spending on welfare due to stronger job creation than assumed in the budget.
The Australian reports this morning that Prime Minister Scott Morrison and Treasurer Josh Frydenberg will outline surpluses totalling $30 billion over four years.
As Business Insider reported in October, the budget position has been improving at an astonishing pace, thanks largely to strong commodity prices and a mini-jobs boom that has driven down the unemployment rate.
And last month, the finance department reported an underlying cash balance for the financial year to 31 October standing $8.8 billion lower than the $24.1 billion expected at this point in the budget delivered in May.
The windfalls have been primarily cyclical in nature, helped by the unexpectedly high prices for Australia’s top exports, coal and iron ore. Stronger commodity prices make Australia’s huge mining companies more profitable, in turn resulting in larger tax takes for the federal government.
A missing part of the picture has been wages growth, which continues to undershoot expectations. The RBA expects wages growth to start gradually recovering as the unemployment rate continues to edge lower. However, the strong job creation has offset the weak wages growth for the budget’s bottom line.
This makes for a fascinating setup for next year’s federal election: while the budget position clearly gives the major parties room to plan more spending, not all of the revenue improvements are guaranteed to be ongoing.
Labor yesterday unveiled a $6.6 billion housing affordability scheme, which promises $8,500 in payments to landlords who rent their properties out at 20% lower than the market rate. (However, the $6.6 billion is spread over 10 years.)
And just this morning, the Coalition announced a $500 million package to improve aged care services, including opening up access to 10,000 home care places within weeks.
Business Insider will have coverage of the budget position when the numbers are announced.
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