Mid-Year Economic and Fiscal Outlook: The Result

Australia’s Charter of Budget Honesty Act requires the federal government to release a mid-year budget report which provides updated information on the Government’s fiscal position.

The December Mid-Year Economic and Fiscal Outlook (MYEFO) contains both good and bad news: on the plus side, the federal government still expects the Budget to return to balance in 2020-21. On the negative side, the deficit between now and then is expected to be higher.

MYEFO Takeouts
The underlying cash deficit is expected to narrow from $36.5 billion in 2016-17 to $10.0 billion in 2019-20
Revenue expected to be down by $30.5 billion over 4 years
Expenses expected to be down by $16.5 billion over 4 years
Net debt as a proportion of economic output will peak at 19% in 2018-19
Sluggish wage growth and non-mining company profits to blame

 

“Once again the Government has demonstrated that we do not spend more than we save, and that the predominant mechanism for restoring the Budget to balance is by getting expenditure under control,” said Federal Treasurer, Scott Morrison.

“Since our re-election in July 2016, the Government has made significant progress in working with the Parliament to legislate measures to repair the Budget.

“The Government is committed to working with the Parliament in 2017 to continue to legislate the savings measures included in the Budget bottom line. There is more work to be done and we will continue to work with the Parliament to this end in next year’s autumn sittings.”

The government acknowledged that the economy hasn’t yet managed the transition to non-mining health, and that it is relying on an increase in household consumption to get the economy back into shape – which will require more jobs, along with wage growth.

MYEFO Response

Responding to the MYEFO the ACTU expressed cynicism about the government’s ability to stimulate job growth.

“After promising jobs and growth, Turnbull and his team have instead delivered high unemployment, record low wage growth and now the real possibility of a recession – the first one in 25 years,” said ACTU Secretary Dave Oliver.

“This Government refuses to acknowledge that we have a revenue problem and has squibbed tax reforms which would ensure we have enough revenue to pay for essential services.

“This Government also refuses to acknowledge its own role in driving down wages, not only is this forcing Australian workers to make do with less, but it is blowing a hole in government revenue, and continues to be a drag on economic growth.”

The Australian Chamber of Commerce and Industry, on the other hand, has expressed support for the government’s decisions.

“The Treasurer has rightly avoided the temptation to reach for economy-crushing tax increases to improve the budget bottom line. Australia needs broad-based tax reform rather than a piecemeal approach in order to stimulate growth,” said James Pearson, CEO of the Australian Chamber.

“The Treasurer is right to stand by the Government’s commitment to cut the company tax rate to a more internationally competitive 25% for businesses of all sizes. The Government took this policy to the election and the Parliament should allow it to be put into action. We know from Treasury that two-thirds of the benefit flows to households, making it a vital tool to improve wages and the prosperity of all Australian families.

“It is now clear that a young Australian born in 2008 may need to wait until their teenage years before they experience a budget surplus. Prolonged budget deficits mean long into their adulthood, that child will be paying the price for the collective reluctance of our current generation of politicians to make the tough decisions needed to curb spending.”

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