While Houses & Holes has already done an excellent job demolishing the Budget’s overall economic and financial assumptions, I want to focus on just one part: the assumed jump in wages growth from 1.9% currently to 3.75% in 2020-2021:
This wages growth assumption is particularly important to the Government’s forecast return to Budget surplus by 2020-2021, since it directly impacts two vital components: household final consumption spending (the biggest driver of economic growth) as well as the Budget’s personal income tax receipts (the biggest source of tax revenue). Thus, if wages growth is overstated – which it most certainly is – then so to is the assumption that the Budget can return to surplus by the end of the forward estimates.
