Australia’s budget surplus has been slashed by $2.1billion because of a revenue drop and the effects of a severe drought and bushfires.
Treasurer Josh Frydenberg promised, in the April budget, a surplus would be delivered for the first time since 2007 – before the global financial crisis hit Australia.
The budget, unveiled a month before the election, forecast a surplus of $7.1billion.
But Treasury’s Mid-Year Economic and Fiscal Outlook released on Monday has downgraded that to $5billion, fearing the ‘devastating’ drought and bushfires would hit the economy.
The surplus for this financial year is $2.1billion or 30 per cent smaller than promised eight months ago.
Australia’s budget surplus has been slashed by $2.1billion because of a revenue drop and a slow economy. Treasurer Josh Frydenberg (left with Finance Minister Mathias Cormann) promised, in the April budget, a surplus would be delivered for the first time since 2007 – before the global financial crisis hit Australia
The economic growth forecast for 2019/20 has also been slashed to 2.25 per cent, down from 2.75 per cent, as Australia emerges from the weakest growth since the GFC a decade ago.
Treasury suggested bushfires and the drought would hurt the Australian economy, as global growth stalled.
‘Australia’s economy continues to show resilience in the face of weak momentum in the global economy as well as domestic challenges such as the devastating effects of drought and bushfires,’ it said.
‘Lower farm production and exports resulting from the drought are expected to continue to detract from growth in 2019-20.’
Mr Frydenberg, the Liberal Party’s deputy leader, was forced to reduce expectations for the size of the surpluses over the next four years because of shrinking tax revenue.
The Treasury, however, was upbeat about the economy, despite it suffering from a per capita recession.
‘The Mid-Year Economic and Fiscal Outlook confirms the resilience of the Australian economy and that the budget is on track to return to surplus for the first time in 12 years,’ Mr Frydenberg said in a statement on Monday.
Total tax receipts have been revised down by $3billion in 2019/20 and by $32.6 billion over the four years to 2022/23.
The surplus for 2020-21 is expected to shrink to $6.1billion, down from $11 billion as estimated in the April budget.
The budget, unveiled a month before the election, forecast a surplus of $7.1billion. But Treasury’s Mid-Year Economic and Fiscal Outlook released on Monday has downgraded that to $5billion. The surplus for this financial year is $2.1billion or 30 per cent smaller than promised eight months ago
LATEST KEY FEDERAL BUDGET AND ECONOMIC FORECASTS
* 2019/20 surplus $5 billion vs $7.1 billion at the April budget.
* 2020/21 surplus $6.1 billion vs $11.0 billion.
GROSS DOMESTIC PRODUCT
* 2019/20 2.25 per cent vs 2.75 per cent.
* 2020/21 2.75 per cent vs 2.75 per cent.
* 2019/20 5.25 per cent vs 5.0 per cent.
* 2020/21 5.25 per cent vs 5.0 per cent.
* 2019/20 2.5 per cent vs 2.75 per cent.
* 2020/21 2.5 per cent vs 3.25 per cent.
Source: Treasury Mid-Year Economic and Fiscal Outlook
However, Mr Frydenberg stuck to his 2.75 per cent growth forecast for 2020/21.
Wage growth forecasts were reduced, while the unemployment rate was expected to be higher than hoped at 5.25 per cent, rather than five per cent for this financial year and next.
While the mid-year update included a $623.9 million aged care package, there were no other new major spending measures to lift economic growth.
This will keep the pressure on the Reserve Bank of Australia to reduce the cash rate even more in 2020.
The RBA wants to see the jobless rate closer to 4.5 per cent to help lift wages growth.
Economists widely expect the central bank to cut the cash rate to 0.5 per cent, from the present record-low of 0.75 per cent, in February when the Reserve Bank board returns from the summer break.
KEY SPENDING SINCE THE PRE-ELECTION UPDATE
* Extra $4.2 billion on road and rail projects.
* $1 billion water infrastructure package.
* $540 million Australian Business Growth Fund.
* First home loan deposit scheme to start January 1.
* Drought support includes additional $1.3 billion since election.
* $624 million over four years for aged care in response to royal commission.
* $34 million extra for veterans’ support.
* $1 billion Grid Reliability Fund for new power generation, storage and transmission projects.
* $300 million for Papua New Guinea “economic reform”.
* $40 million over 10 years to test new ways of providing foreign aid.
* $2 billion Australian Infrastructure Financing Facility.
KEY SAVINGS SINCE THE PRE-ELECTION UPDATE:
* $196.4 million over four years through combatting illegal phoenix activity.
* Interest payments to drop as surplus.
* public service efficiency dividend to save $1.5 billion over four years to 2022/23.
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