The Federal Budget deficit has ballooned-out to $48.5 billion, which is $30 billion worse than the previous Labor Government initially forecast, but slightly less than forecast by the Coalition in the May Budget, according to the Final Budget Outcome (FBO) for 2013-14, released today by Treasurer Joe Hockey:
In 2013‑14, the Australian Government general government sector recorded an underlying cash deficit of $48.5 billion (3.1 per cent of gross domestic product (GDP)). The fiscal balance was in deficit by $43.7 billion (2.8 per cent of GDP).
In cash terms, the Final Budget Outcome for 2013‑14 was a $1.4 billion improvement compared with the underlying cash deficit estimated at the time of the 2014‑15 Budget. Total receipts were $3.2 billion lower than expected, more than offset by total payments which were $4.2 billion lower than expected. Net Future Fund earnings were $341 million lower than estimated at the time of the 2014‑15 Budget.
In fiscal balance terms, the Final Budget Outcome for 2013‑14 was a $1.3 billion improvement compared to the fiscal balance deficit estimated at the time of the 2014‑15 Budget, with revenue $317 million lower than expected, expenses $1.4 billion lower than expected, and net capital investment $177 million lower than expected…
As expected, Hockey used the result to lambast the former Labor Government:
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“The Government inherited a shambles of a Budget, a weakening economy and rising unemployment,” he says.
He says the FBO confirms Labor delivered six successive deficits totalling $240 billion with many more to come. Including 2013-14, Labor left the Government with future deficits of $123 billion.
Unfortunately for Hockey, things are set to get worse. National income is falling, owing to the slump in the terms-of-trade, which is pulling down nominal GDP – the dollar value of what’s produced and earned and also the measure that drives taxation revenue.
Nominal GDP grew by just 3.3% in the year to June 2014, which is well below the 6.8% average growth experienced throughout the Howard Government’s rein (see next chart).
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The previous Labor Government was no stranger to slumps in nominal GDP. During its rein, it twice fell to below real GDP: during the GFC and in early-2013. But even then, Labor still managed to enjoy average nominal GDP growth of 5.6%, which is above the 4.2% average growth enjoyed so far under the Abbot Government.
Given the terms-of-trade has much further to fall, the Federal Government will remain under heavy pressure on the revenue-side of the balance sheet. It also faces rising expenditures from both rising unemployment (increasing welfare payments) and an ageing population. In turn, the Abbott Government’s claim of Budget superiority is likely to be put to the test in the year’s ahead.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
