Bill Evans
Overview
The Australian Treasurer will release the Federal Budget on Tuesday March 29. The timing has been brought forward from the traditional second Tuesday in May to accommodate the Federal election – which is due by May.
Here we set out our expectations for the numbers the Government will present in the annual Budget.
These are not our forecasts, but rather our expectation of the Government’s forecasts (as at this point time).
The 2022 Budget will describe a stronger economy around strong wages and employment growth and higher commodity prices boosting national incomes.
The fiscal strategy will pivot now that the unemployment has been successfully reduced and is set to move below 4% for the first time since 1974. The focus shifts from supporting demand, the priority throughout the pandemic, to supporting supply.
Fiscal policy is normalising, just as monetary policy is set to.
New policy initiatives will likely be relatively modest in this Budget, while at the same time assisting with cost of living pressures for those on lower and middle income (this includes those on social benefit payments).
This is surprising, but commendable, given the Government is facing an election and is behind in the opinion polls.
In particular, we do not expect it will extend the $8bn low and middle income offset (LMITO) for another year, despite the fact that the Stage 3 tax cuts are not scheduled to be introduced until 2024/25.
The government is expected to bank the bulk of the windfall from a stronger economy – lowering budget deficits and public debt.
On our figuring, the budget deficit for 2021/22 is lowered to $77.7bn from $99.2bn in MYEFO, a $21.5bn improvement. This is after incorporating $7.5bn in new spending, with a focus on a $4bn cost of living package, which is expected to be distributed before the May election.
Across the four years to 2024/25, there is a $78bn windfall from a stronger economy.
This follows the reported improvement at the May Budget last year of $106bn and a further improvement of $110bn in the December budget update – the Mid Year Economic and Fiscal Outlook (MYEFO).
Of this Budget’s $78bn improvement, $58bn is forecast to be directed to lowering the budget deficit and reducing public debt. There is $20bn in new policy, with a focus on an $8bn package to boost the supply side of the economy.
By Andrew Hanlan and Bill Evans