Australia’s Budget to Roar Back to Black, But Watch Election Spending, Report Says

Michael Heath
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Australia’s Budget to Roar Back to Black, But Watch Election Spending, Report Says

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Australia’s budget will surge back to surplus in fiscal 2020 as key revenue drivers dodge an economic slowdown, but a pre-election spending spree is a risk to the bottom line, Deloitte Access Economics says.

The April 2 budget will show an underlying cash surplus of A$9.8 billion ($7 billion) in the 12 months through June 2020 from a A$2.1 billion deficit this fiscal year, Chris Richardson, a Deloitte partner and ex-Treasury official, said in a report released Monday. That’s despite a sharp deceleration in economic growth as tumbling property prices curb consumption and construction.

“Luck’s a fortune,” Richardson said. “The worst economic news is in things that the federal budget taxes lightly -- such as wealth -- or we don’t tax much -- such as spending. Meanwhile there’s good news in profits and jobs. Both are outperforming official forecasts amid a jump in iron ore prices and rip-roaring job growth.”

Prime Minister Scott Morrison’s government is trailing in opinion polls ahead of a May election and is expected to use the improved fiscal position to try to buy its way back into contention. Australians struggling under one of the developed world’s highest household debt burdens and stagnant wages are likely to welcome tax cuts, as will the central bank, which is under increasing pressure to resume interest-rate cuts to reverse slowing growth.

“Let’s be clear: revenues aren’t roaring because the government has been raising tax rates,” Richardson said. “They’re up because the only bits of the economy still moving at speed happen to be key drivers of revenues. Yet that also means that revenues are vulnerable to any further signs of weakness.”

He warned of repeating the mistakes of the last decade when the then-conservative government used a commodity price windfall to finance substantial tax cuts. When the cycle reverted to more normal levels, Australia slid into deep deficits for more than a decade.

“The further out you look, the more the short term positives of the moment run into some bad news bears for revenues,” Richardson said. “The iron ore price spike fades, the good news on jobs gets more than smothered by the bad news on wages, the dive in house prices makes consumers increasingly cautious, and overall economic growth seems set to disappoint.”

To contact the reporter on this story: Michael Heath in Sydney at mheath1@bloomberg.net

To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net, Karthikeyan Sundaram

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