PEFO maintains the budget economic outlook but changes the deficit estimates

Leader of the Opposition Bill Shorten and Prime Minister Malcolm Turnbull. Mick Tsikas – Pool/Getty Images

Treasury and Finance Department officials, in a pre-election look at the state of the federal purse, have maintained the economic and fiscal outlook set out in the federal budget but see the deficit rising slightly this year and improving a bit in the longer term.

PEFO, the Pre-election Economic and Fiscal Outlook, re-states the federal budget’s forecast that the Australian economy will grow by 2.5% next financial year and then pick up to 3% in 2017-18 as the impact from falling mining investment eases.

The current financial year deficit estimate has been changed since the budget, increasing by $100 million to $40 billion.

The officials kept the deficit forecast for next year at $37.1 billion but predict a $100 million improvement on the budget deficit for 2019-20. It’s now forecast at $5.9 billion, rather than $6 billion.

The projections by Treasury and the Department of Finance also maintain the assumption that tax receipts as a proportion of GDP do not rise above 23.9%.

Employment growth is expected to remain solid across the forward estimates, with the unemployment rate forecast to fall to 5.5% in the June quarter of 2017 from 5.75% in the same three months in 2016.

The PEFO forecasts of major economic indicators:

“The Australian economy is transitioning from a mining investment boom to broader-based drivers of growth,” the PEFO report says.

“Historically low interest rates and a lower exchange rate since its peak in 2011 are helping to support growth.

“Consumption is forecast to grow steadily over the forecast period supported by a continuing decline in the savings rate.

“Investment in housing is expected to grow strongly in 2015-16 and then to remain at a high level, although the rate of growth is forecast to slow.”

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