Treasurer Joe Hockey’s says he’s taken an optimistic, glass half full view of Australia’s economic prospects.
According to budget estimates, Australia’s unemployment rate will peak at 6.5% next financial year and real GDP will grow to 3.5% in 2017-18.
Hockey sees historically low interest rates, a lower oil price and a lower exchange rate all working together to support strengthening economic growth.
“Our numbers are the best available numbers,” he told a media briefing. “There’s nothing gilded there. I didn’t influence the numbers, they are based on best information. I will leave it to economists to opine whether we are too positive or too negative. But as far as I am concerned they are the best possible forecasts. You can always look at the dark side … not me.”
In the budget papers, Hockey said forecasts are subject to uncertainty.
“Sustained momentum in the recoveries in the US and euro area economies could translate into stronger-than-expected growth for major trading partners, which will be a positive for Australia,” he said. “But there is also the possibility that China’s transition to a more sustainable growth model may not be smooth.”
However, this budget shows a sustained recovery is now forecast a little later than expected in the 2014-15 budget.
Real GDP growth is forecast to increase from 2.5% in 2014-15 to 2.75% in 2015-16 before increasing to 3.25% in 2016-17.
The most significant development since the 2014-15 budget has been the sharp reduction in the iron ore price. That budget forecast a price of $US96 a tonne.
This budget’s forecasts are based on an iron ore price of $US48 per tonne. Current global prices are running at around $US60.
“Inherent uncertainty around both demand and supply factors means that the price outlook is subject to considerable risk,” according to the budget papers.
Lower commodity prices are flowing through to lower income growth throughout the economy, including wages.
Since the 2014-15 budget, expected total tax receipts have been downgraded by around $14 billion in 2015-16 and $52 billion over the four years to 2017-18.
That brings the downgrades in forecast tax receipts since the Pre-Election Economic and Fiscal Outlook 2013 to more than $90 billion.
The size of government, as measured by the payments-to-GDP ratio, is set to fall over the forward estimates to 25.3% from 25.9%.
The underlying cash deficit is expected to be $35.1 billion in 2015-16 or about 2.1% of GDP, reducing to $6.9 billion (0.4% of GDP) in 2018-19.
A return to an underlying cash surplus is projected in 2019-20, the same year as projected in the December mid-year economic statement, MYEFO.
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