Australian Federal Budget 2018: Improved position - Westpac

Bill Evans, Research Analyst at Westpac, points out that the Australian Federal Budget 2018 is to be delivered by the Treasurer on Tuesday night, May 8 and the budget position has improved relative to expectations in the Government's December Mid-Year Economic and Fiscal Outlook (MYEFO).

Key Quotes

“Key to this development is that in 2017/18 the economy has been more resilient than anticipated (largely around employment growth and commodity prices).”

“Budget themes are to be personal income tax relief and infrastructure spending. Other themes may include the environment, health and aged care, as well as education, although the usual extensive 'media guidance' has been absent this year.”

“The improved starting position provides the flexibility to provide some modest personal income tax relief and modest new spending, while at the same time still leaving the budget better off over the four year period to 2020/21.”

“Westpac Economics expects the underlying deficit for 2018/19 to be announced as $15.0bn, an upgrade of $5.5bn on MYEFO. Across the four years, the improvement is $11.5bn.”

“The budget is still expected to return to surplus in 2020/21, with the balance gradually improving from a deficit of 0.9% of GDP in 2017/18 to a surplus of 0.4% of GDP in 2020/21.”

“The budget economic forecasts are expected to be largely unchanged from MYEFO, with the notable exception that nominal GDP growth is likely to be 4.0% in 2017/18, upgraded from 3.5%.”

“The profile for real GDP growth from 2017/18 is unchanged at: 2.5% and 3.0% thereafter.”

“The profile for nominal GDP growth from 2018/19 is: 4.0%, 4.5% and 4.75%, with growth in each year below trend as the terms of trade moves lower.”

“For commodity prices, the growth profile is expected to be broadly in line with MEFYO, including a 5% decline in 2018/19.”

“The revised budget profile is relatively modest on our figuring and is unlikely to substantially alter the broader economic outlook. A caveat, it remains unclear as to the potential impact on household spending decisions of any personal income tax cuts.”

“As to risks, while the budget has surprised to the upside of late, downside risks remain. Economic growth may fall short of budget expectations, which have real GDP growth at 3.0% each year from 2018/19 to 2023/24, a pace a little above trend. Westpac Economics is forecasting growth of 2.7% and 2.5% for the upcoming two years. Another risk is around the upcoming Federal election and the potential budget impact of election related spending promises.”