The underlying budget deficit for the twelve months to January stood at $37.1 billion. Over the same period the fiscal balance stood at a deficit of $41.6 billion and the headline budget deficit was $45.2 billion.
- Annual growth of budget revenues stands at 11.3 per cent – the fastest in three years. Expenses annual growth is just below 4 per cent.
- On track to meet forecasts. The Mid Year Economic and Fiscal Outlook statement projected a budget deficit of $37.1 billion for 2011/12 and budget surplus of $1.5 billion for 2012/13. The same statement projected the fiscal balance to be in deficit of $32.4 billion in 2011/12 and in surplus by $4.7 billion in 2012/13.
- GST receipts flat lining. Receipts from the Goods and Services Tax stood at $48.7 billion in the twelve months to January, up just 2.9 per cent on a year ago. The Government projects GST receipts of $49.75 billion in 2011/12, an increase of 3.4 per cent on the previous year.
What does it all mean?
- Late on a Friday afternoon – but not at fixed time each month – the Department of Finance releases monthly Budget estimates. Why on a Friday afternoon, and why there is no fixed time for the release, has never been explained. The Coalition government had the same practice as the current Labor Government. No statistical agency or company follows the same practice of releasing key information late on a Friday afternoon (and this month before holiday weekends in Victoria and the ACT).
- But the latest news doesn’t need to be buried, as it is generally encouraging. The Government projected a budget deficit of $37.1 billion for 2011/12, and in the twelve months to January, that’s where the annual deficit stands. Sure, the profile set by the Department of Finance was for a deficit of $28.9 billion for the seven months to January and it stands at $30.1 billion. But in budget terms, that’s not far away.
- The fiscal balance was in deficit by $41.6 billion in the twelve months to January, ahead of the $32.4 billion deficit projected for 2011/12. But still the profile set by Finance was for a $26.7 billion deficit in the seven months to January and it is actually better at a deficit of $26 billion currently, so the bean counters would suggest it is still on track.
- If the government achieves its goal of a $37.1 billion deficit this year, it will translate to a deficit of just 2.6 per cent of GDP (current GDP $1442 billion). Compared with other advanced economies, that is clearly a good outcome. There is still work required to reach a budget surplus in 2012/13, but as things stand we could be in far worse shape.
- In terms of the Department of Finance profile, revenue is around $2 billion short of where it needed to be, but expenses are also short by $2.8 billion. Underlying cash receipts are around $3 billion short according to the profile while underlying cash payments are short by $1.8 billion.
- From the perspective of states and territories, GST receipts are crawling higher at an annual rate of near 3 per cent. Still the expectation was that GST receipts would lift by 3.4 per cent in 2011/12, so again there is no need for angst.
What do the figures show?
- In the 12 months to January, budget revenue stood at $328.4 billion, up 11.3 per cent on a year ago. Over the same period, expenses stood at $364.9 billion, up 3.9 per cent on a year ago. Annual growth of revenue is the fastest in three years. Expenses have been averaging annual growth near 3.9 per cent over the past 18 months.
- The underlying budget deficit for the twelve months to January stood at $37.1 billion. For the same period the fiscal balance stood at a deficit of $41.6 billion and the headline budget deficit was $45.2 billion.
- The Mid Year Economic and Fiscal Outlook statement projected a budget deficit of $37.1 billion for 2011/12 and a budget surplus of $1.5 billion for 2012/13. The same statement projected the fiscal balance to be in a deficit of $32.4 billion in 2011/12 and in surplus by $4.7 billion in 2012/13.
- Receipts from the Goods and Services Tax stood at $48.7 billion in the twelve months to January, up just 2.9 per cent on a year ago. The Government projects GST receipts of $49.75 billion in 2011/12, an increase of 3.4 per cent on the previous year.
What is the importance of the economic data?
- The Department of Finance and Deregulation release the Government Financial Statement (Niemeyer Statement) almost every month. The statement allows investors to track the current budget position and provides insights into the effectiveness of fiscal policy.
What are the implications for interest rates and investors?
- The Government can rightly claim success on the current budget position. Clearly things can still go wrong, but latest figures would comfort the bean counters that extra efforts aren’t required to achieve the budget forecast. Given that budget forecasts and outcomes can miss by big margins, the current figures are encouraging.
- Fiscal policy is working to slow the economy (the budget deficit is contracting). Given that the budget is on target, the Reserve Bank can have greater confidence to trim rates if further stimulus is required.