Monthly budget statement
- The Monthly Financial Statements for December 2019 report the budget position against the expected monthly profile for the 2019-20 financial year through to 31 December 2019, based on the 2019-20 Mid-Year Economic and Fiscal Outlook (MYEFO) estimates published in December 2019.
- In the twelve months to December the underlying cash balance was $2,483 million (0.1 per cent of GDP). The budget deficit is around $1 billion higher than estimated by the MYEFO documents.
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?
- In the year to March last year the Federal Budget was in surplus by $1.5 billion. And that has been as good as it gets (if you regard a surplus as ‘good’) in the period since. The election robbed momentum from the economy. As did the global economic slowdown caused by the US-China trade stoush. Then there was Brexit, recession fears in the US and the domestic east coast drought. More recently there were the bushfires and hailstorms. All these factors have served to slow government revenues and boost expenses.
- A small deficit is actually appropriate for Australia’s circumstances. The extra spending – around $700 million to date – will support the economy together with low interest rates. The projected $5 billion surplus this year may not happen. But structurally the accounts are in reasonable shape.
What do the figures show?
- In the twelve months to December 2019, the Budget deficit stood at $2,483 million (around 0.1 per cent of GDP).
- Over the six months to December, tax refunds have totalled $28.7 billion, up $5.2 billion or 26.7 per cent on the same period a year ago.
- Smoothed revenues (twelve months to December) were up 6.1 per cent on a year ago – the slowest growth in 29 months. Smoothed expenses were up by 5.77 per cent – the fastest growth in 55 months.
- Annual company tax collections are up just 1.6 per cent over the year after recording double-digit annual results over 2017/18 and 2018/19. Net individual tax is up 2.3 per cent.
- But tax refunds are up 20.9 per cent on a year ago.
- In terms of expenses, health spending is up 12.4 per cent on a year ago while public debt interest is actually down 2.2 per cent, just short of the biggest decline for over three years.
- The Department of Finance noted: “The net operating balance for the year to 31 December 2019 was a deficit of $10,213 million, which is $443 million higher than the 2019-20 MYEFO profile deficit of $9,770 million. The difference results from lower than expected revenue and lower expenses.”
- In terms of the underlying cash balance, “The underlying cash balance for the financial year to 31 December 2019 was a deficit of $15,170 million, which is $1,121 million higher than the 2019-20 MYEFO profile deficit of $14,049 million..”
- Receipts: “Total receipts were $309 million lower than the 2019-20 MYEFO profile.”
- Payments: “Total payments were $701 million higher than the 2019-20 MYEFO profile.”
- Federal Treasury and the Department of Finance currently expect an underlying surplus of $5.0 billion for 2019/20.
- In terms of the fiscal balance the Department of Finance noted: “The fiscal balance for the year to 31 December 2019 was a deficit of $11,947 million, which is $651 million higher than the 2019-20 MYEFO profile deficit of $11,296 million. The difference results from lower than expected revenue, lower expenses and higher net capital investment.”
- Receipts from the Goods and Services Tax stood at $65,609 million in the twelve months to December, down 2.9 per cent on a year ago and down from the record $67,574 million in receipts for the year to December 2018.
- Actual GST receipts for the six months to December stood at $34,548 million, just below the Budget ‘profile’ of $34,724 million.
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?
- The tax cuts are still flowing, injecting $5.2 billion into the economy. There has been some slippage in revenue and the Government is spending a little more. So overall there are extra dollars supporting activity in the economy.
- We expect no change in interest rates at the February 4 Reserve Bank Board meeting.