Australia MYEFO: $5.2bn deficit, a $9.3bn upgrade - Westpac

Analysts at Westpac, suggest that the Australian Federal Treasurer Frydenberg’s Mid-Year Economic & Fiscal Update (MYEFO) had a surprise with both national income and jobs growth having a high side in 2018/19.

Key Quotes

“This is underpinning stronger revenue and lower expenditures. Notably, commodity prices have stayed higher for longer.”

“Looking ahead, MYEFO assumes that key commodity prices fall back to the same levels assumed in the May 2018 Budget. This profile has the terms of trade and nominal GDP downgraded in 2019/20.”

“The MYEFO numbers also include a $16.3bn cost from the net impact of new policy measures over the four years to 2021/22. The net cost of $16.3bn is comprised of $4.1bn in lower receipts and $12.2bn in higher payments.”

“In 2019/20, the budget position improves by a more modest $1.9bn - reflecting the revised terms of trade profile, as well as the impact of new policy measures, totalling some $4.0bn in this year. The budget surplus for 2019/20 is upgraded from $2.2bn to $4.1bn.”

“The budget balance is forecast to improve to a surplus of $19.0bn (0.9% of GDP) in 2021/22.”

"From Westpac’s perspective we assess the risks to the government’s real activity forecasts as being to the downside. Consumer spending, residential construction and wages growth are likely to be weaker than forecast in MYEFO while uncertainty around the upcoming Federal election and global trade tensions might unnerve businesses. On the other hand, as China continues to pursue its anti- pollution policies Australia’s bulk commodity export prices, particularly coking coal, may surprise to the upside. Note that MYEFO is predicting the terms of trade to fall by 6% in 2019/20.”