The underlying budget deficit for the twelve months to May stood at $34.1 billion – the lowest result in almost three years (33 months). The deficit has improved by 45 per cent over the past two years.
- Over the same 12 month period to May, the fiscal balance stood at a deficit of $31.4 billion and the headline budget deficit was $41.4 billion.
- Annual growth of budget revenues stands at 13.9 per cent, the strongest result in 40 months. Annual growth of expenses is 4.6 per cent.
- Slippage in June? The Federal Government brought forward assistance payments into June. As a result the budget deficit for 2011/12 was expected to be $44.4 billion. A surplus of $1.5 billion is expected in 2012/13.
GST receipts near target. Receipts from the Goods and Services Tax stood at $49.2 billion in the twelve months to May, just off the record high in the year to February and up 1.1 per cent on a year ago. The Government had forecast GST receipts of $47.8 billion in 2011/12.
What does it all mean?
- The Government has again elected to release the latest news on the budget position late on a Friday afternoon. But the data released on Friday was very encouraging. The budget position has continued to improve with the rolling annual deficit hitting a near three year low in May. To some extent the extent of the improvement has crept up on us, with the general belief that revenues were stagnating. In fact budget revenues are up near 14 per cent on a year ago, the fastest pace in almost 3½ years. At the same time expenses are up just 4.6 per cent on a year ago.
- Not only is the annualised budget position showing good signs of improvement, the latest results are better than the assumed profile. Revenues are around $600 million ahead of the “profile” position in May while expenses are lower by around $650 million.
- The Federal Government elected to advance assistance payments in June, thus the budget deficit for 2011/12 was expected to be $44.4 billion, ahead of the deficit of $34.1 billion for the twelve months to May.
Not only is the budget position showing encouraging signs of improvement, but GST receipts are well ahead of Government estimates. In the twelve months to May, GST receipts stood at $49.2 billion whereas the Government projected receipts of $47.8 billion for the 2011/12 year.
What do the figures show?
- In the twelve months to May, budget revenue stood at $343.6 billion, up 13.9 per cent on a year ago – the strongest annual growth in 40 months. Over the same period, expenses stood at $369.8 billion, up 4.6 per cent on a year ago. Expenses have been averaging annual growth near 4 per cent over the past two years.
- The underlying budget deficit for the twelve months to May stood at $34.1 billion, the lowest result since the year to August 2009. Since peaking in the year to August 2010 at $62.5 billion, the annual deficit has improved by 45 per cent. For the same period the fiscal balance stood at a deficit of $31.4 billion and the headline budget deficit was $41.4 billion.
- In April 2012 the monthly surplus was $10.6 billion – the highest surplus in four years. The May deficit of $1,611 million was also better than the May 2011 deficit of $2,199 million.
- Receipts from the Goods and Services Tax stood at $49.2 billion in the twelve months to May, up 1.1 per cent on a year ago. The Government had projected GST receipts of $47.79 billion in 2011/12.
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?
- It’s good news. Other governments are struggling with budget deficits, high debts and rising debt repayments. But Australia’s budget deficit is showing consistent signs of improvement on the back of solid revenue growth and the size of our deficit remains low on global comparisons.
- As the Reserve Bank Governor highlighted last week, Australia’s good budget position and relatively high cash rates compared with other advanced nations gives policymakers great flexibility to deliver more stimulus should it be required. Fortunately extra stimulus doesn’t look like it will be required if actions by European leaders end up living up to the current rhetoric.
- Certainly some accounting gymnastics will assist the achievement of a budget surplus in 2012/13. The tax cut for small business wasn’t progressed, higher concessional superannuation caps were deferred and a Schoolkids Bonus was paid in 2011/12, (lifting the 2011/12 deficit and thus reducing the hurdle to a surplus in 2012/13). But real budget discipline and better-than-expected receipts have ensured that the underlying position has also continued to improve. In other words, real improvement is occurring in the budget position as the data and charts clearly show.
31 July 2012