Federal Treasurer Josh Frydenberg today handed down his Mid-Year Economic and Fiscal Outlook, cutting his forecast 2019-20 budget surplus to $5 billion, down from $7.1 billion at the time of his pre-election budget in April.
The document also flags a further GST downgrade, saying: “Excluding policy decisions, GST receipts have been revised down by $1.8 billion in 2019-20 and $9.9 billion over the four years to 2022-23.”
“This reflects a weaker-than-expected outcome for 2018-19, and downgrades to consumption subject to GST and dwelling investment,” the MYEFO paper reads.
While it doesn’t specify the hit to SA across the forward estimates, the GST reduction will be around $136 million in the current financial year.
That comes just a week after SA Treasurer Rob Lucas handed down his own mid-year budget review, which projected slim surpluses for each of the next four years, including $91 million in 2019-20 and $68 million in ‘20-21, before increasing to $176 million and $104 million in the following two years.
Asked if that meant his budget surplus would be wiped out by the new GST blow, Lucas told InDaily: “If that actually is what transpires – which is a big if – and if we made no other adjustments… if we weren’t a nimble, agile, flexible government, then it would.”
“It’s clearly a not a good thing, but in terms of managing our $21 billion budget – it is what it is,” he said.
“It’s an estimate at this particular stage… our Treasury’s view is that the Commonwealth estimate is more pessimistic than our own – and a couple of other [state] Treasurers have similar views.
“We’ll find out towards the end of the financial year whose estimate is correct.”
He said he would “prefer to see the national economy bubbling along” more strongly and was concerned by the ongoing downward trend of consumption expenditure.
“There’s a further argument for considering at a federal level whether there’s further flexibility for measures to increase consumption expenditure, such as bringing forward income tax cuts,” Lucas said.
“They’ll be the sorts of issues the federal government will have to consider in the lead-up to next year’s federal budget.”
Labor’s shadow Treasurer Stephen Mullighan said despite the GST reductions, Lucas’s budget still contained higher revenues than under the former Government’s final fiscal document in December 2017.
“Based on his forecast surplus, he’s now facing a deficit [but] his problem is every extra dollar that comes in the door, he spends,” Mullighan said.
“So when there’s a revision to the GST revenues like this, he looks like he’s plunging into deficit… we’d hope he doesn’t turn back to setting South Australians higher taxes, fees and charges.”
Federally, the surplus in 2020-21 is now forecast to be $6.1 billion, instead of the $11 billion previously estimated, with the downgrades sheeted to a $32.6 billion cut to tax receipt expectations over the four years to 2022-23.
But Frydenberg remains on course to be the first treasurer to return a surplus since Peter Costello 12 years ago.
“If you look at our last three final budget outcomes we have bettered what was forecast by $37 billion,” Frydenberg told reporters in Canberra.
The economic growth forecast for 2019-20 has also been slashed to 2.25 per cent, from 2.75 per cent.
This was blamed on weak momentum in the global economy, as well as domestic challenges such as the effects of drought and bushfires.
The MYEFO also showed downgrades to household consumption, business investment and wages growth, which is forecast to be cut across the next four years, but is still predicted to be at three per cent in four years time compared with 2.2 per cent now.
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.
However, the Treasurer pointed out the participation rate for those in work or looking for employment is set to rise, and despite the gloomy backdrop, he is sticking to his 2.75 per cent economic growth forecast for 2020-21.
“What is going to drive more employment across the economy is our infrastructure spending, is the increase spending we are providing to hospitals and schools and the full rollout of the NDIS,” he said.
He also anticipates the government’s personal income tax cuts will increase economic activity, although recent data suggests households are either saving the money or paying down debt.
Otherwise, while the review did include a $623.9 million aged care package, there was no new major spending to lift economic growth.
This will keep the pressure on the Reserve Bank of Australia to reduce the cash rate even further next year.
The central bank wants to see the jobless rate closer to 4.5 per cent to help lift wages growth.
Economists widely expect the Reserve Bank to cut the cash rate to 0.5 per cent when the board returns from the summer recess in February from its record low 0.75 per cent.
– with AAP
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