Monthly Financial Statements
- Budget continues to improve: In the twelve months to October 2018, the Budget deficit stood at $2,345 million (less than 0.2 per cent of GDP) and down from the $3,379 million deficit in the year to September. The rolling annual deficit is the lowest for over 9½ years. Over the same 12-month period to October, the fiscal balance was in surplus by $2.37 billion.
The monthly Budget figures can provide insights on the broader economy and policy settings. If fiscal settings are tight, the Reserve Bank may allow easier monetary settings.
What does it all mean?
- The Federal Budget continues to improve each month and is arguably in the best shape in a decade. The fiscal balance is in surplus for the year to October and the underlying budget is tantalising close to surplus. Taxes are being paid and spending is being restrained for a win-win situation on budget finances.
- At this point in the year the finance boffins had suggested that the ‘profile’ deficit would be around $24 billion. Four months into the year and the deficit is around a third smaller than expected.
- And annual growth of GST receipts over the past four months has averaged 6.7 per cent. With inflation near two percent, real growth in spending is solid near 4.5 per cent. Businesses and consumers are spending freely.
What do the figures show?
- In the twelve months to October 2018, the Budget deficit stood at $2,345 million (less than 0.2 per cent of GDP) and down from the $3,379 million deficit in the year to September. The rolling annual deficit is the lowest for over 9½ years. Over the same 12-month period to October, the fiscal balance was in surplus by $2.37 billion.
- Smoothed revenues (twelve months to October) were up 9.4 per cent on a year ago – the fastest growth in six years. Expenses rose by 3.1 per cent over the same period, just above the slowest growth in almost two years.
- The Department of Finance noted: “The net operating balance for the year to 31 October 2018 was a deficit of $9,375 million, which is $10,089 million better than the 2018-19 Budget profile deficit of $19,464 million. The difference primarily results from higher than expected revenue and lower expenses.”
- In terms of the underlying cash balance, “The underlying cash balance for the financial year to 31 October 2018 was a deficit of $15,336 million, which is $8,813 million lower than the 2018-19 Budget profile deficit of $24,149 million.
- Receipts: “Total receipts were $6,559 million higher than the 2018/19 Budget profile.”
- Payments: “Total payments were $3,119 million lower than the 2018/19 Budget profile.”
- In terms of the fiscal balance the Department of Finance noted: “The fiscal balance for the year to 31 October 2018 was a deficit of $9,526 million, which is $11,571 million better than the 2018-19 Budget profile deficit of $21,096 million. As with the net operating balance, the difference primarily results from higher than expected revenue, lower expenses and lower net capital investments.”
- The Government currently expects an underlying deficit of $14.5 billion for 2018/19, around six times higher than the current rolling annual deficit.
- Receipts from the Goods and Services Tax stood at a record $66.78 billion in the twelve months to October, up 4.5 per cent on a year ago. The Government has forecast GST receipts of $70.31 billion for the entire 2018/19 year.
- Actual GST receipts for the four months to October stood at $23.71 billion, above to the Budget ‘profile’ of $23.46 billion.
What is the importance of the economic data?
- The Department of Finance releases the Government Financial Statements (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?
- With an election approaching, the risk is that both sides of Parliament will lift spending, slowing down the progress of the budget towards surplus. The good news is that with a 1.5 per cent cash rate and near balance on budget accounts, there are options available to stimulate our economy if the global economy took a turn for the worse.
- The shrinking budget deficit is effectively taking dollars out of the economy, balancing the accommodative stance of the cash rate – still sitting at a record low of 1.5 per cent.
- Based on GST receipts, spending growth is healthy, with annual growth sitting at 6 per cent. As the CBA Business Sales index has shown, consumers and businesses are spending more outside traditional retailing.
- CommSec expects interest rates to remain unchanged until later in 2019.