• Federal Treasurer Frydenberg released the Budget Outcome for the 2017/18 financial year.
• The result exceeded the Government’s forecast in the May 2018 Budget. • The underlying cash deficit for 2017/18 came in at $10.1bn, -0.6% of GDP, some $8.1bn below the forecast of $18.2bn (-1.0% of GDP).
• The net operating balance was a deficit of $4.0bn, a $8.6bn improvement on the May 2018 forecast.
• The surprise was all but fully explained by an $8.5bn undershoot on expenses.
• Revenue broadly met expectations. While taxation receipts fell short of forecast by $1.1bn this was fully offset by upside on dividend income.
• Net general government debt at June 2018 is $342bn (18.6% of GDP), some $7.9bn lower than forecast.
• In keeping with tradition, no figures or commentary are provided for the current financial year and beyond.
• The Mid-Year Economic and Fiscal Update for 2018/19 is likely to be released by late December.
Comment
The broad fiscal strategy has been to narrow the deficit gradually over time through a combination of expenditure restraint and waiting for revenue to lift as the economy recovers. The 2017/18 outcome highlights the success of this strategy.
Recall that in the May 2018 Budget the Government expected the underlying cash balance to progressively improve across the forecast period as follows: -$18.2bn in 2017/18, -$14.5bn in 2018/19; +2.2bn in 2019/20; +$11.0bn in 2020/21; to +$16.6bn (0.8% of GDP) in 2021/22. L
ast Friday, Standard & Poor’s upgraded the outlook on Australia’s AAA credit rating to ‘stable’ from ‘negative’ in recognition of the improved fiscal position and outlook.
Looking ahead, the economic outlook for the 2018/19 financial year is arguably stronger than expected in the May 2018 Federal Budget – across jobs growth and nominal GDP (benefiting from resilient commodity prices).
Beyond 2018/19, we note that the economic projections describe a very benign outlook and are vulnerable to any material negative global shock. That said, net debt levels are still relatively manageable, providing some fiscal flexibility.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
