The Government’s 2019-20 budget sees a much-heralded return to budget surplus that has given the Treasurer the financial headroom to craft a budget that both appeals to voters as well as providing fiscal stimulus to an economy that could benefit from a bit of a boost to consumer spending.
Tax offsets for low income earners, extension and increases in the level of instant depreciation for small business and tax cuts for many taxpayers (at least in future years) all encourage additional spending in the community, providing a buffer against potential slowdowns in economic activity driven by uncertainty about a range of issues including the decline in house prices, slowing of growth overseas and the potential trade wars between Australia’s major trading partners. Even with these risks, the Government is forecasting household consumption to increase driven, in part, by the personal income tax measures outlined in the budget.
Business investment is also forecast to grow over the budget forecast period but at lower rates than has been seen in recent years. Business investment is forecast to grow by 5 percent in 2019-20 and 4.5 percent in 2020-21. Net exports are forecast to grow by 4 percent in 2019-20 driven, in part, by higher than forecast commodity prices, which are expected to decline from historically high price levels over the next year or so.
The return to surplus is, in part, simply being in the right place at the right time – strong domestic and global economic growth as the world bounces back from the GFC, coupled with increasing demand and historically high prices for iron ore and metallurgical coal has meant that the Government can now start to pay down some debt with a faster than predicted return to budget surplus. It also means that it has some freedom to use fiscal policy to stimulate demand when needed – as well as provide a few election sweeteners to voters.
This article was written by economics adviser Robin Barlow from NineSquared.
If you have any questions regarding the above and would like to contact Robin, please email [email protected].