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Tuesday, 19 December 2017

Horizon still 3 miles away

Budget deficit cut

Well, the bottom line certainly looks in a little better nick for the right-on Scott "Sco-Mo" Morrison and the Treasury than it did when the Budget was released seven months earlier. 

The Federal Government is now projecting a budget deficit of $26.3 billion for this financial year.

That's down from an expected $29.4 billion at the time of the May budget. 


In fact, the bottom line is set to be $9 billion better off over the next four years, with the projections showing a return to a surplus of $10.2 billion or +0.5 per cent of GDP by 2020-21 (though, like the horizon etc...).

The chart data isn't available until December 22, but compared to the 2017 MYEFO the Government is evidently projecting a stronger few years ahead. 

This is, to be fair, positive news for the shoring up of Australia's hallowed AAA-rating.

An objective reading of the mid-year outlook, however, would conclude that the improvement has as much been down to stronger iron ore and coal prices - plus the improving labour market - than anything much that the government has achieved in terms of attacking budget repair.

Any port in a political storm, I guess...including Port Hedland.

Gross profits have soared by +27 per cent over the past year to a record high of $319 billion, following the fortunes of the mining sector, which should flow through to higher company taxes. 

The iron ore price is certainly experiencing a cracking run-up over the last few weeks of 2017, nailing 3-month highs of above US$74/tonne yesterday. 

The huge increase in employment growth in 2017 should also help to reduce government payments prospectively, although on the flip side our ever-optimistic government has been forced to accept that stronger wages growth will take longer than previously expected to return.

Net debt is now estimated to peak as a proportion of GDP at 19.2 per cent in 2018-19, little changed from the 2017 MYEFO, and is expected to decline to 7.7 per cent of GDP by 2027-28 (a slight improvement).

The government will continue to look for ways to make savings, including the latest wheeze, making it harder for new migrants to obtain benefits.

The wrap