Drought, trade at fault on budget

DROUGHT and international trade tensions are to blame for a smaller than expected budget surplus, the federal Treasurer says.

The Government slashed its forecast of a $7.1 billion budget surplus to $5 billion in the midyear budget update.

“What these numbers do show is that we do face challenging economic times,” Treasurer Josh Frydenberg said yesterday. “There’s always work we continue to do to continue to strengthen the Australian economy.”

The Treasurer said the Government would continue responding to emergencies such as the drought, which potentially meant cutting deeper into the surplus.

“We need to create the buffers, we need to create the flexibility so that Australia can respond to future economic shocks,” Mr Frydenberg said.

But shadow treasurer Jim Chalmers says the Government should be spending the surplus now. He pointed to budget figures revealing rising unemployment, stagnant wages and poor business investment.

Dr Chalmers said it was counter-productive for the Treasurer to hold out on business investment incentives until next year’s budget.

“We think it’s possible to do something responsible and proportionate and measured to boost the economy without jeopardising the surplus,” Dr Chalmers said.

Mr Frydenberg also waved away concerns over consumer spending, after personal income tax cuts failed to deliver an expected boost. He said people were choosing to pay off their debt now, which would free up money later.

He compared this pattern to the Government’s pursuit of a surplus and debt repayment.

“The lower the debt levels the lower your interest payments,” he said.

Australia’s economy was forecast to grow by only 2.25 per cent, a reduction from a forecast growth of 2.75.

Mr Frydenberg also cut wage growth forecasts, now predicting they won’t reach 3 per cent until 2022-23.

Meanwhile, the Australia Institute said the projected budget surplus was about to be fudged, with Future Fund net earnings included in the underlying cash balance from 2020-21.

The institute said this meant the projected $4 billion surplus for 2022-23, minus Future Fund earnings of $5.9 billion, would be a $1.8 billion deficit if the current budget rules were followed.

WE NEED TO CREATE THE FLEXIBILITY SO THAT AUSTRALIA CAN RESPOND TO FUTURE ECONOMIC SHOCKS.

TREASURER JOSH FRYDENBERG