After years of massive surpluses in the years leading up to the global financial crisis, Australia’s federal budget has been a sea of red in recent years.
However, while that’s unlikely to change any time soon, for the first time in a long time, the budget bottom line appears to be improving.
And that’s a good sign for the Australian economy.
That’s the view of Kristina Clifton, economist at the Commonwealth Bank, who has released an excellent research note on Tuesday, chock-full of charts showing that budget revenues are running ahead of plan, thanks in part to booming commodity prices.
Here are five of the charts contained in the report.
Company tax receipts are lifting, boding well for nominal GDP and national income
“Higher tax revenue growth points to a lift in Q4 nominal GDP,” says Clifton.
“The lift in revenue is largely as a result of higher company tax receipts. This is likely to be the early impact of higher commodity prices. The trade balance has been improving since July and moved strongly into surplus in November and December. So the higher commodity revenues are hitting the balance sheets of the mining companies and are starting to translate into higher taxation revenues.
“This will also start to boost the profits of firms that service the mining industry.”
And income tax receipts are also lifting, despite soft employment and wages growth
“(Individual tax receipts) are stronger than expected at this point in the financial year,” says Clifton.
The budget bottom line for 2016/17 is tracking ahead of where it was at the same point in the previous financial year.
However, while that’s some encouraging news for the economy and budget outlook, it’s not all good news.
But wage growth remains tepid
“Growth in PAYG [pay as you go] receipts per employee remained soft over the December quarter,” says Clifton.
“This points to another soft outcome for wages growth in Q4.
She also says that growth in PAYG tax receipts also remain subdued, an outcome that matches up with weak full time jobs growth in 2016.
And GST revenues remain weak, a sign of continued caution from households
“The downturn in momentum in GST growth suggests that nominal consumer spending growth may be on the softer side in Q4,” says Clifton.
“However retail sales, which account for around 30% of household spending, rose by a solid 0.9% in volume terms in the quarter, so at least some of the weakness in nominal spending can be explained by discounting.”
So, despite the improvement in the budget position, the improvement is not something to get overly excited about just yet.
Much will be determined by whether the commodity price rally will persist long enough to allow the full benefits to filter through the broader economy, hitting corporate revenues and employee wages.
Australia’s Q4 GDP report will be released on Wednesday, March 1. Australia’s federal budget is usually handed down on the second Tuesday in May each year.