Morrison stopped the boats but can he stop the deficit?
One might consider Treasurer Scott Morrison’s statement that “there is more work to be done” to address Australia’s Budget deficit as the understatement of the year. Today’s Mid-Year Economic and Fiscal Outlook (MYEFO) has revealed that the nation’s deficit has ballooned by more than $10 billion over the forward estimates as the Turnbull Government struggles with low wage growth and falling company profits.
Yet the 2016-17 MYEFO is a document with numbers but no policy – a hodgepodge of minor savings measures in the areas of health, social welfare and industry that are designed to gather little attention of the electorate. While the Government continues to deliver savings to cover new expenditure, the absence of the Government’s road map for economic reform is like the elephant in the room.
2016 was a political year that many would rather forget – the Turnbull Government will be hoping that MYEFO will also be placed in the political waste basket.
Jobs and growth – nothing to see here
For a Government that shouted “jobs and growth” throughout the Federal Election and has continued the mantra ever since, the lack of both suggests a decided failure in the Coalition core policies. The MYEFO report states: “With spare capacity in the labor market expected to persist, growth in household incomes and domestic prices are forecast to remain subdued”. Earlier this month we saw that the GDP in September fell 0.5 per cent, only the fourth such decline in 25 years. Once you remove population growth, Australia’s economy fell by 0.8 per cent – the second-worst fall over the same 25 year period. MYEFO states that wage growth will fall from the predicted 2.5 per cent to 1.9 per cent, wiping with it at least $1 billon dollars from Government revenue.
AAA rating – still on the table
Australia’s AAA rating appears safe for now, with the rating agencies giving the Government more time to improve the bottom line after the Treasurer confirmed the delivery of a budget surplus in 2020-21 remains the target. However, agencies look at commitment and not rhetoric, and the lack of reform measure articulated will make them nervous. Expect to hear more after the Federal Budget – any downgrade in Australia’s AAA rating will be a hole through the heart of the Turnbull Government.
Don’t forgot the Brexit/Trump effect
Global headwinds were the words the Treasurer and Finance Minister used during this afternoon’s press conference, however they may have simply called these headwinds Trump and Brexit. President-elect Trump’s election in the US is already impacting Australia’s shores – increasing bond rates worldwide have added between $1-2 billion to the Government’s debt servicing costs. The US economy and a stable US-China economic relationship are critical to maintaining Australia’s growth, wealth and living standards. Much of where the Australian economy will go over the coming 12 months is out of this and any future Australian Government’s hands.
The policies hitting the Budget bottom line
• Seventy-five new infrastructure projects including $215 million for works on the Pacific Motorway in Queensland and $60 million for the Outback Way (totalling $813 million over three years).
• Secure funding for Commonwealth water functions, as part of the Government’s commitment to deliver the Murray Darling Basin Plan ($398 million over three years).
• New and amended listings on the Pharmaceutical Benefits Scheme and the Repatriation Pharmaceutical Benefits Scheme – including for asthma medication ($141 million over four years).
• Extra staff for crossbenchers and other politicians ($35.8 million over four years).
• Setting up a Black Economy Taskforce to counter unreported and untaxed economic activity ($1.6 million over two years).
Where the savings are being made
• Scrapping the Asset Recycling Fund, Building Australia Fund and the Education Investment Fund (saving $10 billion over four years).
• Expanding social security fraud prevention and debt recovery (saving $2.1 billion over four years).
• Abolishing former Prime Minister Tony Abbott’s Green Army (saving $224.7 million over four years)
• Reforms to public dental services (saving $242 million over four years).
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