Australia: Fiscal outlook downgraded – Westpac

Westpac analysts point out that Australia’s budget surplus was cut by $21.5bn over four years as softer economic outlook hits revenues.

Key Quotes

“The Federal government has sharply downgraded the fiscal outlook in its Mid-Year Economic and Fiscal Outlook (MYEFO), released today.”

“In particular the forecast budget surpluses for 2020/21 and 2021/22 have been reduced from $11.0bn and $17.8bn to $6.1bn and $8.4bn respectively.”

“The government has gone further and cut the wages forecast to 2.5% - no lift in wages growth from the 2019/20 forecast of 2.5% and in line with the Reserve Bank’s thinking.”

“We estimate that the difference between our own forecast that nominal GDP growth in 2020/21 would be lowered to 3.0% in this document and the government’s forecast of 2.25% is explained about 50/50 between a weaker wages/ prices forecast and a lower profile for commodity prices – largely centred around coal.”

“There are upside risks to the commodity price forecasts but we can understand why the government would be cautious around these forecasts in MYEFO - wanting to avoid a further fiscal downgrade when the 2020 Budget is announced on May 12.”

“Under these new fiscal estimates from MYEFO the fiscal position would change to deficits of $0.9bn and $5.6bn, respectively if the tax cuts were to be brought forward.”