Signs are positive, but discipline key to surplus success
The 2017-18 Federal Budget has a rosy outlook but will require strong fiscal discipline if it is to return to a projected $7.4b surplus in 2020-21.
The Government has forecast a return to surplus, or close to surplus, within the four-year forward estimates period in each of the last four budgets.
Net debt for 2016-17 has remained broadly in line with the projection in last year’s Budget at around $325b however, net debt is now due to peak at $375b in 2019-20, up from $355b.
The Federal Government has made use of ‘Good Debt’ and ‘Bad Debt’ identifiers to describe changes in the fiscal balance.
Infrastructure spending, or net capital investment, has been highlighted as a good form of debt as it can contribute to economic growth, while borrowing to finance recurrent expenditure, or net operating balance, is labelled bad debt.
Surpluses in both good debt and fiscal balance (the combination of all spending including bad debt) are projected for 2019-20 and 2020-21, despite the large capital spending in those years.
On a positive note, Australia is in its 26th year of positive economic growth.
The Government has downgraded its growth forecast for this year from 2.5 per cent to 1.75 per cent, primarily due to Tropical Cyclone Debbie disrupting economic activity.
Economic growth is expected to recover over the remainder of the forecast horizon as growth in household consumption and exports continue to strengthen.
Economic growth is expected to be three per cent in 2018-19.
The unemployment rate is expected to have peaked at 5.75 per cent in 2016-17, with declining forecasts over the forward estimates period towards 5.5 per cent.
Exports are expected to continue to grow strongly with 5.5 per cent growth in 2016-17 followed by five per cent growth in 2017-18 and four per cent growth in 2018-19.