The Bull

Tuesday 19

March, 201911:28 AM



Federal budget approaches surplus

Federal budget approaches surplus

In the twelve months to November 2018, the Budget deficit stood at $1,816 million...

Share |

24.12.2018 03:02 PM

Federal Budget close to surplus
Monthly Financial Statements

Budget continues to improve: In the twelve months to November 2018, the Budget deficit stood at $1,816 million (less than 0.2 per cent of GDP) and down from the $2,345 million deficit in the year to October. The rolling annual deficit is the lowest for over 9½ years. Over the same 12-month period to November, the fiscal balance was in surplus by $5.124 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. The rolling annual underlying cash balance could move into surplus at some point in the next three months – not long before the April Budget Statement and the May Federal Election. The rolling annual fiscal balance has been in surplus for the past three months.

• On the back of record corporate profits and the best job market in seven years, budget revenues are rising. And at the same time, the Government is showing restrain on spending.

• At this point in the year the finance boffins had suggested that the ‘profile’ deficit would be around $21 billion. Five months into the year and the deficit is over $8 billion smaller than expected.

• And annual growth of GST receipts over the past five months has averaged 4.6 per cent. With inflation near two percent, real growth in spending is solid near 2.6 per cent. Businesses and consumers are spending freely.

What do the figures show?

• In the twelve months to November 2018, the Budget deficit stood at $1,816 million (less than 0.2 per cent of GDP) and down from the $2,345 million deficit in the year to October. The rolling annual deficit is the lowest for over 9½ years. Over the same 12-month period to November, the fiscal balance was in surplus by $5.124 billion.

• Smoothed revenues (twelve months to November) were up 9.7 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 30 November 2018 was a deficit of $3,307 million, which is $11,410 million better than the 2018-19 Budget profile deficit of $14,716 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 30 November 2018 was a deficit of $12,497 million, which is $8,441 million lower than the 2018-19 Budget profile deficit of $20,938 million.”

Receipts: “Total receipts were $7,910 million higher than the 2018/19 Budget profile.”

Payments: “Total payments were $1,571 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 30 November 2018 was a deficit of $3,885 million, which is $12,813 million better than the 2018-19 Budget profile deficit of $16,698 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 now expects an underlying deficit of $5.2 billion for 2018/19, around three times higher than the current rolling annual deficit.

• Receipts from the Goods and Services Tax stood at a record $66.52 billion in the twelve months to November, up 3.1 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 November stood at $30.418 billion, just below the Budget ‘profile’ of $30.797 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.

• CommSec expects interest rates to remain unchanged until later in 2019.

Published by Craig James, Chief Economist, CommSec
Archive
Markets
Index: Points Change Percent

PLEASE SUPPORT OUR SPONSORS, AUSTRALIA'S LEADING BROKERS:



© Copyright TheBull.com.au. All rights reserved.