These 3 charts show why Australia's federal budget position is rapidly improving

MARK GRAHAM/AFP/Getty ImagesPrime Minister Scott Morrison.

Australia’s federal budget has been in deficit since the GFC. However, given current forecasts from Treasury, that will soon come to an end, and potentially sooner than expected.

While firmer economic growth both at home and abroad, along with higher commodity prices, have clearly played a part in the improvement in the budget bottom line, it’s not the only factor driving a reduction in the deficit in recent years.

These three charts from Macquarie Bank help explain why.

The first shows total growth in employee compensation — what workers get paid.

Macquarie Bank

In the year to June, total worker pay grew by 3.25% in real, inflation adjusted terms, helped primarily by more employment rather than a lift in average worker pay.

In nominal terms, total worker pay lifted by a faster 4.75% over the year.

However, as the next chart shows, household disposable income — including not only worker pay but other forms of income — grew significantly slower over the year, lifting by 1.6% in real terms or 3.1% in nominal terms.

Macquarie Bank

You may notice the red bars at the bottom of Macquarie’s chart, showing that the slower growth in disposable income reflected that households, as a whole, paid more in income tax, largely reflecting that more workers are moving into higher income tax brackets.

As seen in the final chart from Macquarie, that’s seen the average share of an individuals income going to income tax lift over the past seven years, a trend expected to continue in the current financial year even with already introduced tax cuts for workers.

Macquarie Bank

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