Where Is This Softening Economy The Government Is Talking About?

Getty/Ron Burton

Before the election the Abbott government said it liked to under promise, and over deliver.

But with the MYEFO delivered this afternoon it seems we may be seeing a bit of Howard/Costello era chicanery.

The Government has downgraded nominal and real growth for the economy over the forward estimates from the pre-election PEFO statement as we documented earlier.

There is a big blowout in deficits this year and the Government is not forecasting a move back to surplus for a decade.

But the thing that stands out as questionable is this statement from the MYEFO statement:

The deterioration in the budget position since the 2013 PEFO reflects two key factors:

  • The softer economic outlook
  • Essential steps to address unresolved issues inherited from the former government

Firstly, a softening in the economic outlook has resulted in significantly lower nominal GDP, which has largely driven the reduction in tax receipts by more than $37 billion over the forward estimates.

The softer economic outlook, coupled with changes in demand-driven programmes, has also increased payments across the forward estimates.

Softer Economic outlook?

Just this morning the RBA released the minutes from its decision to hold rates steady at 2.5% in Nov and cited the “substantial” easing in the pipeline as still providing significant stimulus.

The RBA said:

the Board had judged that leaving the cash rate unchanged was appropriate while continuing to gauge the effects of the substantial degree of monetary policy stimulus that had already been put in place. There had been further signs of the stimulatory effects of low interest rates, most notably in the housing market, and additional effects were still likely to be coming through. At the same time, inflation remained within the target.

It is almost exactly the same wording used for the last 3 months and the ANZ economics team has produced a client report saying that the “RBA (is) comfortably on hold and sounding a little more optimistic.” This is the way we read the minutes as well.

But not the Government and not the MYEFO papers which are decidedly downbeat.

Or, is the Treasurer just painting a really poor picture so he can follow the lead of Australia’s last Liberal Treasurer and over deliver come budget time?

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