The federal budget was in deficit by $43.7 billion in 2011/12 or 3.0 per cent of GDP. At the time of the May 2012 budget the government projected a deficit of $44.4 billion.
- Government handouts to families and seniors contributed to a record monthly budget deficit of $14.4 billion in June.
- Receipts from the goods and services tax were $1,059 million above the estimate in the 2012/13 budget. The GST receipts of $48.8 billion were up 1.6 per cent on a year earlier.
What does it all mean?
- The good news is that the federal budget is headed back towards surplus, although this may not appear obvious from the latest figures. In the year to May, the federal budget was in deficit by $34.1 billion, having improved in eight of the previous nine months, and down from a record $63.3 billion deficit in the year to September 2010. But there was a hiccup in June as the government provided a number of handouts to Aussie consumers, the annual deficit coming in at just under $44 billion.
- Still, the underlying deficit continues to improve. The government has shifted some payments into 2011/12, and delayed or cancelled other spending scheduled for 2012/13. A combination of firm revenue growth and flat expenses should push the budget back towards surplus.
- It’s always important to remember that the budget is merely an accounting statement of government finances. In essence, things can go wrong. And while the budget is considered an economic document, it’s also a political document as well, with the government of the day deciding what to spend on a when.
- In May 2011 a budget deficit of $22.6 billion was project. At the mid-year review the projection had blown out to $37.1 billion and in the May 2012 budget the projection had lifted to a $44.4 billion shortfall. Currently a small $1.5 billion surplus is projected for 2012/13.
- From an economic perspective it is encouraging that underlying revenues are continuing to improve with firmer economic growth. Weaker commodity prices mean that the path to surplus less assured, but much also depends on the job market remaining firm and consumers continuing to spend. CommSec tracks the monthly budget statements and figures for July and August should be available over the next month. So we should soon be in a position to see if the surplus goal remains achievable.
- At three per cent of GDP, it is important to stress that Australia’s budget is in far better shape than most advanced nations. Similarly Australia’s net government debt level of 10 per cent is well at the bottom end of the pack.
What do the figures show?
- The Australian federal budget was in deficit by $43.7 billion in 2011/12. At the time of the release of the 2013 Federal Budget in May, the Government had forecast a deficit of $44.4 billion for the 2011/12 year.
The underlying budget deficit improved by $4 billion over 2011/12, from a deficit of $47.7 billion (3.4 per cent of GDP) in the 2010/11 year. - Receipts rose by 9.2 per cent to $329.9 billion while payments rose by 7.2 per cent to $371 billion. Future Fund earnings eased from $3.7 billion to $2.6 billion.
- The headline cash balance improved from a $51.1 billion deficit to $47.0 billion deficit in 2011/12. And the fiscal balance improved from a deficit of $51.5 billion (3.7 per cent of GDP) in 2010/11 to a deficit of $44.5 billion (3.0 per cent of GDP) in 2011/12.
- Australian Government general government sector net debt was $147.3 billion (10.0 per cent of GDP), which was $4.8 billion higher than estimated at the time of the 2012/13 Budget.
- Australian Government general government sector net financial worth was minus $358.3 billion at the end of 2011/12. Net worth was minus $247.2 billion at the end of 2011/12.
- Receipts from the goods and services tax were $1,059 million above the estimate in the 2012/13 budget. The GST receipts of $48.8 billion were up 1.6 per cent on a year earlier.
What is the importance of the economic data?
- The Federal Government is required to release the Final Budget Outcome by the end of September each year. The data may have implications for fiscal policy – government spending and taxing – if the figures deviate from official expectations.
What are the implications for interest rates and investors?
- It may not appear obvious, but the goal of a budget surplus is still on track. And if spending remains restrained over the coming year while revenues continue to recover, then fiscal policy will be regarded as contractionary, thus keeping the door open for another rate cut.
- The latest budget result is a “good news” outcome, thus the release of the figures on a Monday, rather than Friday afternoon as is traditional with monthly budget statements.
- GST revenues grew in line with inflation over the past year – effectively translating to no growth in real terms. State governments have been complaining about lack of funds to meet on-going spending demands and infrastructure commitments. But if recent settled conditions on global markets continue, there are hopes that consumers and businesses will spend more freely over the coming year, meaning more GST revenue.