The Coalition hands its first budget down tonight.
It will set the tone for fiscal policy for the next few years, and is expected to contain some tough measures.
Spending cuts, the axing of agencies and public service jobs as well as tax increases have been flagged to eventually bring the budget back to surplus.
Ahead of the release, we’ve rounded up the big banks’ predictions for the 2014/15 deficit, as well as a few bonus items.
The predictions range from $26 billion to around $30 billion, and they all indicate the figure will be a significant improvement on the $33.9 billion outlined in the mid-year review.
The economics team at CBA is predicting the 2014/15 deficit will come in at an underlying balance of $28 billion.
CBA also predicts that GDP forecasts will be similar to those adopted by the Commission of Audit, which were:
Real GDP growing by 2.5% in 2013/14 and 2014/15, and 3% in the subsequent two years.
Nominal GDP, which drives the revenue side of the budget, growing at 3.5% per annum in both 2013/14 and 2014/15, increasing to 4.75% per annum in the next two years.
ANZ is predicting the 2014/15 deficit will be “around” $30 billion — which is down on this financial year’s expected $47 billion deficit — but as it points out, is still a substantial 2% of GDP.
The economics team at ANZ, led by Warren Hogan, has also pointed out that the slew of media reporting on the tough measures expected could be a way to soften voters up.
This “well understood tactic” should pave the way for a modest tightening of fiscal policy over the next few years, the bank says. To illustrate this, they produced the chart below, which shows that they expect Abbott’s fiscal tightening to be far milder than that seen under either the Hawke or Howard governments.
The 2014/15 deficit, according to Westpac, will come in at $26 billion.
Westpac says this improvement on the number predicted in the mid-year review will come from a modest increase in nominal GDP growth forcasts, combined with policy measures.
Nominal GDP growth forecasts will go from 3.5% to 4.25% for 2013/14 and 3.5% to 4.0% for 2014/15, Westpac says.
The economics team at NAB, led by Alan Oster, is calling a deficit of $29 billion for 2014/15, which would amount to 1.8% of GDP.
NAB expects the Australian economy will grow by 3.1% in that period. However, they note:
On the surface, this would be a more than respectable growth outcome, but more than two thirds of this comes from net exports, thanks to a large increase in iron ore production and exports. Domestic demand is forecast to grow by a soft 0.8%.
They also have this great chart, which shows Australia has put on far less debt than other G20 countries since the GFC.