Budget improvements continue on bulks good run

Via Craig James:

 The Federal Budget has started 2017/18 where it left off the previous financial year. Payments are lower-thanexpected and revenue is higher-than-expected. Not only are rolling annual aggregates showing improvement, so are the so-called ‘profile’ positions estimated by the Department of Finance.

 The Government continues to exercise spending restraint. In fact expenses or payments were $244 million below the so-called ‘profile’ level or government estimates for this point in the year. But it is revenue where the main improvement is occurring. The rolling annual level of revenues is growing at a 6.5 per cent annual pace – the fastest growth in over four years and faster than the growth in payments for the 24 th straight month.

 The Budget is currently in a stronger position than the government’s finance boffins have estimated. The good news is that improvement is coming from both sides of the balance sheet.

 Growth of GST revenues slowed in August, in line with data showing more cautious economy-wide spending.

 In the twelve months to August 2017, the Budget deficit stood at $30.6 billion (around 2 per cent of GDP) – the lowest rolling annual deficit recorded in the past 41 months and better than the average deficit over the past year of $36.2 billion.

 Smoothed revenues (twelve months to August) were up 6.5 per cent on a year ago – the fastest growth in 51 months. Expenses rose by 4.1 per cent over the same period, down slightly from July but up from the 12-month average of 3.5 per cent.

 The Department of Finance noted: “The net operating balance for the year to 31 August 2017 was a deficit of $6,673 million, which is $6,506 million lower than the 2017- 18 Budget profile deficit of $13,179 million. The difference results from higher than expected revenue and lower than expected expenses.

 In terms of the fiscal balance, “The fiscal balance for the year to 31 August 2017 was a deficit of $6,307 million, which is $7,327 million lower than the 2017-18 Budget profile deficit of $13,634 million. As with the net operating balance, the difference results from higher than expected revenue and lower than expected expenses.”

 Receipts: “Total receipts were $3,095 million higher than the 2017-18 Budget profile.”  Payments: “Total payments were $244 million lower than the 2017-18 Budget profile.”

 The Government currently expects an underlying deficit of $29.4 billion for 2017/18.

 Receipts from the Goods and Services Tax stood at $62.95 billion in the twelve months to August, up 2.4 per cent on a year ago, but below the 4.7 per cent growth over the last twelve months. The Government has forecast GST receipts of $65.71 billion for the entire 2016/17 year.

 Actual GST receipts for the two months to August stood at $11.8 billion, just above the Budget ‘profile’ of $11.6 billion.

 The Federal Budget continues to surprise – in a positive way. Revenue growth is driving the improvement with growth of annualised revenues the fastest in almost four years.

 The Reserve Bank would be encouraged by the status of fiscal policy. The Government continues to spend on infrastructure but is showing restraint on recurrent expenses. At the same time, with profits at record highs and more people working, tax revenues are lifting.

It all began to improve the moment bulk commodities turned in early 2016. The big improvement is company taxes driven by these higher prices. Met coal is supposed to fall from $200 to $120 by March 2018 but has held up much better so far. Thermal coal is supposed to average $85 but has been better. And iron ore is forecast to average $60 and has been at $66.

Whether it can continue is the question. If not, that drunken spending growth will have to come in too.