Via the excellent George Tharenou:
Budget: only $8bn budget improvement over 5 years; given $96bn stimulus
The Australian Government Budget, relative to the MYEFO released in Dec-20, forecasts a far smaller than expected cumulative improvement over the 5 years to 24/25 of only $8bn. Positively, 20/21 is a material $37bn better at $161bn (UBSe: $148bn, mkt: ~$160bn), or 7.8% of GDP (was $198bn or 9.9%) – albeit still the largest deficit since WW-II. However, the deficit beat by just $2bn in 21/22 at $106bn (UBS: $58bn) or 5.0% of GDP (was $108bn or 5.3%). Indeed, the deficit in 24/25 at $57bn or 2.4% of GDP is actually larger than at MYEFO. The materially stronger than expected economy improved the budget position by a cumulative $104bn over 5 years. Surprisingly however, this was almost completely offset by policy decisions (i.e. that deteriorate the budget balance), which provided far more than expected additional fiscal stimulus of $96bn (UBSe: $40bn+) over 5 years; including a significant $18bn or 0.9% of GDP in 21/22 alone. Nominal GDP growth was revised up sharply to 3¾% y/y in 20/21 (was 1%; UBS 3.2%); but grows only 3½% in 21/22 (was 1¼%, UBS 7.3% y/y), as Treasury forecasts assume the iron ore price retraces to their ‘long-run’ estimate of US$55/t FOB by Mar-22 (which we see as conservative). However, budget sensitivities show if the iron ore price remains elevated until Mar-22, it would add ~$7bn to revenue in 22/23. More precisely, each $10/t upside adds $1.3bn, so we estimate if prices remain near the record spot price of ~$230/t ahead, it implies revenue upside of >$20bn/year.
Gross debt lifts to record $1.1tn or 50% of GDP in 24/25; issuance ~unrevised
Australian Government gross debt (at face value) in 21/22 is $28bn lower than in MYEFO, at $963bn or 45.1% of GDP. However, the peak is higher in 24/25 at a record $1,199bn or 50.0% of GDP. Elsewhere, the peak in net debt also increases to a record high in 24/25 of $981bn or 40.9% of GDP. Previously, UBS expected a large ~$75bn downward revision to net issuance, but we now estimate it is likely to be little revised at ~$215bn in 20/21, and ~$140bn in 21/22. Meanwhile, we estimate the broadest measure of total Government debt (market value, across all Governments) will jump to >$2tn or near 90% of GDP in 23/24, the highest ratio since after WW-II.
