MYEFO 2018

They are the two rules that have defined the Coalition’s economic management – budget repair and a “speed limit on taxes”. On Monday, they found themselves on the final stretch of the collision course they have been hurtling down for years.

We now know how this crash will turn out.

The government’s own rule book, reprinted in Monday’s mid-year economic update states: “The overall impact of shifts in receipts and payments due to changes in the economy will be banked as an improvement to the budget bottom line.”

MYEFO reveals billions more in revenue, $9 billion in fresh election tax cuts

Peter Martin, The Conversation

Higher-than-expected company tax revenue and lower-than-expected spending have boosted the budget’s bottom line by A$14 billion over next four years, allowing it to forecast cumulative surpluses of A$30.4 billion, double what the budget predicted in May.

Modestly improved surpluses

The midyear budget update cuts the projected deficit for 2018-19 from a May estimate of A$14.5 billion to A$5.2 billion.

The surplus forecast for 2019-20 climbs from A$2.2 billion to A$4.1 billion. By 2021-22 the surplus is forecast to be A$19 billion, up from A$16.6 billion.



The surplus won’t reach the government’s long-term target of 1% of gross domestic product until 2025-26. And in projections out to 2028-29 it is not forecast to climb much above this target as the budget hits the Coalition’s self-imposed tax “speed limit” of 23.9% of GDP.



$9 billion in unannounced tax cuts

The budget boost would have been much bigger were it not for more than A$9 billion in “decisions taken but not announced”. Almost all of these are revenue decisions, presumably extra election tax cuts, worth A$2.5 billion to A$3.7 billion per year.

The budget papers say these are decisions taken since the May budget, and are either not for publication or haven’t yet been made public.




Read more:
More mirage than good management, MYEFO fails to hit its own targets


Treasurer Josh Frydenberg confirmed the government had taken decisions to do with tax, but said it would announce them at a time of its choosing rather than in the budget update.

It reserved the right to take other tax and spending decisions in the lead-up to the election. Some would be revealed in the 2019-20 budget, to be delivered in April rather than in May to allow an election in May.

Downgraded wage growth

Although the Treasury has revised up its estimates for revenue and revised down its estimates of unemployment, expecting the rate to fall to 5% by June 2019 and stay there, it has shaved 0.25 percentage points off its estimates for wage growth.

It now expects wages to grow by 2.5% in the year to June 2019 (down from 2.75%) and 3% in 2019-20 (down from 3.25%). In future years, it expects wage growth of 3.5%.



Addressing the downgrade, Mr Frydenberg said weaker-than-expected wage growth appeared to be part of a worldwide phenomenon, “not unique to us”.

Wage growth for the year to September was 2.3%, the highest since 2015. The statement said anecdotal evidence from Treasury’s business liaison program pointed to “skills shortages and wage pressures in some sectors of the economy, consistent with a tightening labour market”.

Weaker consumer spending, economic growth

Growth in consumer spending has also been revised down, from 2.75% in 2018-19 to 2.5%. It is expected to climb back to 3% in 2019-20.

The statement revises down the government’s forecast of economic growth in 2018-19 from 3% to 2.75%, in part because of the Queensland drought, but predicts growth of 3% in 2019-20, 2020-21 and 2021-22, a touch higher than the Treasury’s estimate of long-term sustainable growth.

But debt has peaked and is headed down

The updated figures show net debt has already peaked as a proportion of GDP and will fall faster than previously expected, in line with higher surpluses, sliding from 18.2% of GDP to 1.5% over the decade to 2028-29.



Government receipts are expected to climb from 24.9% of GDP to 25.5% by 2021-22. Payments are expected to fall from 24.9% of GDP to 24.6%.

Mr Frydenberg said the Coalition had kept average real spending growth at 1.9% per year, well below Labor’s 4% over six years which included the global financial crisis.



Finance Minister Mathias Cormann said recurrent spending had fallen below recurrent revenue for the first time in more than a decade.

Recurrent spending excludes spending on long-term investments in things such as road and rail infrastructure.

He said all new spending since the May budget had been offset by spending cuts elsewhere.

No firm commitment on fiscal discipline

Asked whether he felt bound by a commitment in the budget papers to bank rather than spend improvements to the budget’s bottom line due to changes in the economy, Cormann said it was “a matter of balancing priorities”.

The imperative to cut tax to keep it below the government’s self-imposed speed limit might conflict with the commitment to devote extra tax takings to improving the bottom line.




Read more:
Monday’s MYEFO will look good, but it will set the budget up for awful trouble down the track


The Conversation


Peter Martin, Editor, Business and Economy, The Conversation

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Xi Jinping president of China

0
Xi Jinping was the son of Xi Zhongxun, who once served as deputy prime minister of China and was an early comrade-in-arms of Mao...

Death Still Certain. Company Taxes Less So.

0
Maybe we need to amend the adage about death and taxes being the only two certainties. No offense to Benjamin Franklin (or whoever said...

The Queensland election outcome is a death knell for Adani’s coal...

0
The Queensland election outcome is a death knell for Adani's coal mine John Hewson, Crawford School of Public Policy, Australian National University The coal mine proposed...

The case of Michaelia Cash and her leaking adviser illustrates a...

0
The case of Michaelia Cash and her leaking adviser illustrates a failure of ministerial responsibility Michaelia Cash has refused to resign over misleading parliament, claiming...

New foreign interference laws will compound risks to whistleblowers and journalists

0
New foreign interference laws will compound risks to whistleblowers and journalists Increasingly, the language of ‘national security’ is invoked to protect a government’s broader interests. Keiran...

Target the have-nots: Liberals up to the same old tricks

0
A retired bank CEO with $10 million in his super pays zero tax each year. Nada. Zip. He wouldn't even pay the Medicare levy....

Senior ministers deal death blow to Malcolm Turnbull’s prime ministership

0
Senior ministers deal death blow to Malcolm Turnbull's prime ministership Michaelia Cash and Mathias Cormann have delivered the death blow to the prime ministership of...

Citizenship five paid nearly $9 million in salaries they were not...

0
The five federal politicians disqualified over their citizenship status collected close to $9 million in taxpayer-funded salaries they were not entitled to. Former deputy prime...

After previous failures, doubts linger over the ability of APRA and...

0
Doubts have been raised whether the nation’s two peak financial regulators will be able to sharply lift their efforts after the banking royal commission...

The ACCC investigation into the NBN will be useful. But it’s...

0
Industry guidance - view ACCC Report ↓ The ACCC investigation into the NBN will be useful. But it's too little, too late Allan Asher, Australian National...

Big Coal

0
Book review: Big Coal Coal has become part of Australia’s economic landscape, and questioning it is difficult. Bill Collison Stuart Rosewarne, University of Sydney Burning coal is the...

Faith and trust? Prime Ministers? Politicians? The budget will restore trust?

0
"We've soundly established that this was a crappy, crappy year, even by Canberra's standards" Annabell Crab ABC News When Scott Morrison first became Prime Minister —...

The prime minister is wrong to pretend that it’s the economy’s...

0
At a time when the number of people studying economics is at a record low, the number of politicians citing economics 101 seems to...

Adani – Interactive cost, environmental impacts, jobs and the future

0
Interactive: Everything you need to know about Adani – from cost, environmental impact and jobs to its possible future ABC News: Nationwide, a majority of voters...

MYEFO reveals billions more in revenue, $9 billion in fresh election...

0
They are the two rules that have defined the Coalition's economic management - budget repair and a "speed limit on taxes". On Monday, they...
Web Hosting