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Tuesday, 25 September 2018

Budget balance comes screaming back

Surplus in sight

So much for the risk of a downgrade, the Budget has come screaming back to a deficit of only $10.1 billion or 0.6 per cent of GDP in 2017-18, with the risk rating actually upgraded to AAA neutral last week. 

With nominal GDP growing by 4.7 per cent the result was miles ahead of expectations, even those of only four months earlier, let alone the $29 billion deficit projected at the time of the May 2017 Budget.

There was a huge increase in revenues over 2017-18, with jobs growth and compensation of employees shooting the lights out (although wages growth has remained low), as well as a big surge in company tax.

Company profits are at record highs - as I looked at previously here - and some high-profile operators are now in a tax-paying position again, having used up years of carried forward losses.

Meanwhile payments were also well down over the year.

Cherelle Murply of ANZ dropped the latest numbers into the chart below.

The deficit is the smallest in a decade, having continued to decline from 4.2 per cent of GDP in 2009-10 when the economy was in need of serious stimulus.

Net debt will also peak lower than expected.

As you can see the budget could potentially be back into surplus in no time at all. 

Source: ANZ

With an election looming by the middle of next year it's more likely that the Coalition will loosen the purse strings a little in an attempt to turn around some very ordinary-looking polls.

More signs of an improving economy.