Treasurer cuts surplus by billions
Australia is on track to achieve a budget surplus in 2019/20 but the forecast has been cut from $7.1 billion to $5 billion.
Treasurer Josh Frydenberg today released the mid-year update to the 2019/20 budget - handed down in April - which showed a reduction in the budget surplus to $5 billion.
The forecast for economic growth has also been slashed from 2.75 per cent, to 2.25 per cent.
Despite the revisions, Mr Frydenberg said the budget was on track to return to surplus in 2019/20, for the first time in 12 years.
"The government is living within its means," Mr Frydenberg said.
The downgrade to growth was blamed on weak momentum in the global economy, as well as domestic challenges such as the effects of drought and bushfires.
Mr Frydenberg said the devastating drought in Australia had already taken a quarter of a percentage point off GDP growth and reduced farm output by a significant amount over the last two years.
Wages are also not growing as quickly as expected and this will likely reduce the amount of money the government collects in tax.
Wages growth has been downgraded from 2.75 per cent to 2.5 per cent in 2019/20, and from 3.5 per cent to 2.5 per cent in 2020/21.
This will reduce personal income tax collections by $7 billion over the next four years.
MYEFO shows the government expects to collect $9 billion less in Goods and Services Tax (GST) as consumers reduce their spending.
Total tax receipts have been revised down by $3 billion in 2019/20 and by $32.6 billion over the four years to 2022/23.
The unemployment rate is also expected to be higher than hoped at 5.25 per cent, rather than five per cent for this financial year and next.
The downgrade of tax receipt expectations has forced Mr Frydenberg to reduce expectations for the size of the surpluses over the next four years.
The surplus for 2020/21 is now seen at $6.1 billion instead of $11 billion as previously estimated.
However, the treasurer is sticking to his 2.75 per cent growth forecast for 2020/21.
Mr Frydenberg said Australia will reduce the amount of interest it pays on its debt by $13.5 billion over the next four years.
By 2022/23, Australia's interest bill on its debt will fall from $19 billion last year to $14.5 billion.
He said Australia's economy had been remarkably resilient in the face of strong global and domestic economic headwinds.
"The Mid-Year Economic and Fiscal Outlook confirms the resilience of the Australian economy and that the budget is on track to return to surplus for the first time in 12 years," Mr Frydenberg said in a statement on Monday.
While the mid-year update included a $623.9 million aged care package, there were no other new major spending measures to lift economic growth. This will keep the pressure on the Reserve Bank of Australia to reduce the cash rate even further next year.
The RBA wants to see the jobless rate closer to 4.5 per cent to help lift wages growth.
Economists widely expect the central bank to cut the cash rate to 0.5 per cent when its board returns from its summer recess in February from its record low 0.75 per cent.