Lower budget deficits in a more dynamic economy | Liverpool City Champion


Josh Frydenberg will boast a timely improvement in the federal budget’s bottom line just months before the federal election when he delivers his mid-year review this week.

Tens of billions of dollars are expected to have been wiped out of deficits for the next four years as the economy rebounds when the treasurer presents the mid-year economic and fiscal outlook on Thursday.

This could prove to be his last major economic showcase before the federal election if Prime Minister Scott Morrison calls a vote for March, some experts speculate.

However, the 2022/23 budget was scheduled for March 29 from the traditional second Tuesday in May to allow elections to be held in May.

The mid-year review is unlikely to contain any major policies, being largely an “bookkeeping exercise,” as Westpac economists put it.

However, that hasn’t stopped the usual speculation about what it might and might not contain beyond fiscal position updates and economic forecasts.

Westpac predicts that at some point the treasurer will have to extend the low and middle income tax compensation for another year until 2022/23.

Otherwise, it will effectively be seen raising taxes in an election year before the so-called Third Stage tax cuts take effect in 2023/24.

But tax experts are not hoping any major political party will promise sweeping changes ahead of the election, despite major tax reform long overdue.

“We agree with the recent IMF report which calls for real reform of the tax system in Australia,” Mark Molesworth, BDO tax partner, told AAP.

“We cannot continue to expect a 20th century tax system to serve us well in the third decade of the 21st century. “

This will not prevent the treasurer from bragging about the tax “reforms” his government has undertaken, when in reality, they are only changes to the tax system.

Still, signs of a sharp economic recovery after the setback of the Delta variant of the coronavirus, which forced half the population to close, are expected to lead to lower budget deficits.

Avid budget watcher Chris Richardson of Deloitte Access Economics expects deficits to improve by $ 103 billion from budget estimates over four years.

This would see the budget deficit for 2021/22 reduced to $ 91.1 billion, from $ 106.6 billion forecast in the May budget and $ 61.8 billion in 2022/23 from $ 99.3 billion. dollars.

Su-Lin Ong, chief economist at RBC Capital Markets, expects the Treasury to accelerate its economic growth and reduce its unemployment rate in 2021/22 to below 5%, he could see the deficit reduced to 70 billion dollars, even 60 billion dollars.

She notes that revenues are already $ 20 billion above forecast in the four months to October and are only partially offset by additional government spending during recent lockdowns.

“We are reluctant to give much weight to forecasts well beyond next year. This is particularly the case in the run-up to the federal election,” said Ong.

However, ANZ economists don’t expect the treasurer to use this improvement in the update to move on to phase two of his budget strategy, which is about fixing the budget.

“We believe the government will want the unemployment rate to stay comfortably below 5% before starting phase two,” ANZ said.

Westpac economists expect the Treasury to lower its unemployment forecast for 2021/22 to 4.75% from its 5% forecast made in May.

For 2022/23, they expect the forecast to be reduced to 4.25% from 4.75%.

Associated Australian Press


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