Experts wary on deficit
Treasurer Scott Morrison’s second Budget pressed the collect button on more than $13 billion from policies stalled in the Senate, redirecting the cash into an infrastructure kitty of more than $75 billion over four years.
And while that’s had a galvanising effect on the construction sector – licking its lips for major projects such as the Melbourne-Brisbane freight rail line and a second airport in Sydney – the forecasts propping up the revenue 2018 COMMONWEALTH GAMES HOST CITY side of the ledger have faced intense scrutiny.
Mr Morrison is banking on an immediate rebound in gross domestic product growth to 2.75 per cent next financial year as the economy shakes the effects of Cyclone Debbie, rising to 3 per cent in 2018-19. Nominal GDP, which strips out the effect of muted inflation, is even rosier at 6 per cent in the year to June and a still solid 4 per cent next year.
The perennial sugar hit from income tax – which, at $210 billion, accounts for almost half of next financial year’s total revenue pile – is predicated on an equally sharp rally in wages.
Having endured historic low wage growth for the best part of a year, workers will see their collective pay packets rise 2.75 per cent next financial year before surging to 3 per cent in 2018-19.
National Australia Bank chief economist Alan Oster branded the estimates as “very optimistic”.
“We are very sceptical about the wages forecasts – and hence nominal GDP estimates ... and the credibility of the fiscal profile,” Mr Oster said. “This Budget will be popular but from an economic perspective, if it looks too good to be true, it probably is.”
KPMG chief economist Brendan Rynne said talk of sharp wage rises was premature given the high level of “excess capacity” in the workforce, with bosses under no pressure to boost wage bills until demand for their products increases. Capital Economics chief Paul Dales said his expectation of a slowdown in medium-term GDP meant the Budget was unlikely to hit its target of a $7.4 billion surplus by 2020-21.
“We still expect the Budget to be in deficit, perhaps by $10 billion,” he said. “Even though the major credit ratings agencies gave their seal of approval by stating that the triple-A rating is safe, we suspect it might still be lost at some point.”