The federal budget net operating balance last month was more than $6.5 billion ahead of the Treasury’s projections for the federal government’s finances, official figures show.
This improved performance, largely driven by better-than-expected revenue, gives the government the room it needs to move on income tax cuts, as flagged by Prime Minister Malcolm Turnbull in a major speech last night.
Department of Finance figures show that in the first three months of the financial year alone, the net operating balance for the year to 30 September 2017 was a deficit of $16.653 billion.
This is some $6.7 billion lower than the $23.4 billion projected for that point in the budget papers, indicating that the federal government’s budget position is now rapidly improving after years of missing expectations or barely managing to hit targets.
The continuing improvement in the government’s fiscal position is a sign that Treasurer Scott Morrison’s budget strategy — characterised by cautious economic forecasts combined with spending restraint — is proving effective, and has set the conditions for Turnbull to raise the prospects of income tax cuts which would provide much-needed relief to Australian households struggling with low wages growth amid price rises in essential items including energy and insurance costs.
The figures, published in the government’s monthly financial statement for September, need to be treated with some caution because they are subject to significant adjustments.
The Department of Finance notes that “care needs to be taken when comparing monthly or cumulative data across years and to full-year estimates, as revenues and expenses vary from month to month”. However, the better-than-expected performance in the monthly statements is shaping up as a consistent pattern and follows a final budget result for the last financial year that was $4.4 billion better than expected.
Morrison has tried to shift focus in public discussion on the budget position away from the underlying cash balance towards the “net operating balance”, which is a simple measure used in many other countries including New Zealand that reflects revenue minus expenses, and does not include capital expenditure. Morrison’s argument is that capital investments are “good debt” that will drive future productivity.
Capital expenditure to September was a tiny $22 million, compared to a forecast in the budget for this point in the year of $1 billion. The $22 million figure is open to significant adjustments if projects are approved and capital is released for projects.
The underlying cash balance is also running significantly ahead of projections, however, showing a deficit of $17.3 billion as of September against a budget profile of just over $22 billion. This is a gap of $4.8 billion.
Here are the numbers:
As this next note from the statement shows, company taxes receipts were $4.55 billion better than expected.
Income tax receipts were also slightly better than expected. The budget forecasts an unemployment rate of 5.75% for the 2017-18 year. It has been slowly edging lower and is now sitting at 5.4%.
Essentially, the federal government has been improving its financial position at a time when those of households have been increasingly stretched. At the same time, consumption activity in the economy has become a source of increasing concern for economists. In its November monthly interest rates statement, the RBA acknowledged the weak patterns in retail spending and said household consumption remained a “continuing source of uncertainty”.
If the government can remain broadly on track to return a budget surplus while transferring some relief to wage earners, it may go some way towards stimulating consumption activity again.
Turnbull’s comments come as the government is desperate to try and regain control of the political agenda after the citizenship debacle which has threatened the Coalition’s grip on power. But alongside evidence of the improving budget position makes for an interesting combination ahead of the mid-year budget update due next month.