Treasurer Scott Morrison is sticking to his plan to return the Budget to surplus by 2021, even though the bottom line will worsen by just under $11 billion
TREASURER Scott Morrison says he has restored confidence in the Australian economy — staving off a ratings agency downgrade and even predicting a narrow $1 billion surplus come 2020-21.
However, the road to surplus will be tough with the accumulated deficit over the next four years now totalling $94.9 billion. And the predicted surplus is so slim it could easily be eroded by the volatile commodities market.
But with the confidence of a government that has achieved $22 billion in budget cuts in six weeks of parliament despite its slim one-seat majority, Mr Morrison yesterday sold a story of cautious optimism for Australia’s future as he handed down an update to the budget figures.
“Economic growth is expected to increase over the forecast period, as the drag from the decline in mining investment dissipates and the economy transitions to broader based growth, supported by historically low interest rates and a lower Australian dollar,” he said.
He described the Mid Year Economic and Fiscal Outlook as an “optimistic but very realistic outlook”. However, the picture is clearly not entirely pretty. Australia’s GDP growth will fall to 2 per cent this year. And net debt is projected to be $317 billion this year and will rise 15 per cent to $363.8 billion by 2019-20.
The reassuring news from Mr Morrison’s remarks is that the Turnbull government is committed to tackling the spending problem.
There are further cuts planned for next year on top of the $22 billion already made.
“Once again the government has demonstrated that we do not spend more than we save, and that the predominant mechanism for restoring the budget to balance is by getting expenditure under control,” he said. “This means in just six and half sitting weeks, the parliament has legislated almost two thirds of the government’s budget repair measures.”
Ratings agencies responded well to what Mr Morrison had to say and for now have held off on a downgrade. Fitch Ratings Sovereigns director Melvyn Tang sad Australia’s fiscal position had “deteriorated considerably” since the global financial crisis and had eroded our buffer against shocks, like a housing market downturn or weakening of the global economy.
“Fitch expects Australia’s public debt ratios to remain in line with the AAA median, even under Fitch’s more conservative estimates of the pace of deficit reduction,” he said.
Moody’s Investors Service associate managing director Marie Diron praised the “continued commitment to fiscal consolidation” but said meeting the target surplus by 2021 would be difficult with weaker GDP growth. And S P also recommitted to the AAA rating.
The budget update showed government spending had come down to 25.2 per cent of GDP from 25.8 per cent. But revenue was still a problem. Commodity prices — such as iron ore — had improved, but Mr Morrison warned the higher commodity prices were not enough to offset the lower wages growth and declining business profits.
He blamed Labor for risking Australia’s credit rating by refusing to pass further budget measures. The passage of budget repair measures had been “a consistent issue raised by ratings agencies”.
Treasurer Scott Morrison says anyone who is unemployed and refuses a job should not get the dole.