Scott Morrison’s mid-year report card in December 2016 showed a better than expected budget deficit of A$37.1 billion ($28.3 billion), suggesting the treasurer has made some headway in fixing Australia’s budget.
Union-busting bills have delivered A$21 billion in savings and a new plan to establish a bond aggregator to encourage investment in affordable housing has garnered praise.
The government thinks that in the next financial year the budget deficit will blow out to A$28.7 billion, about A$2.6 billion more than Morrison forecast last May. Government debt is also on the rise — net government debt is expected to peak at 19% of GDP in the financial year starting July 1, 2017.
As such, the government’s rhetoric has shifted from a “promised” return to surplus to a “projected” one, and yet there appears to be no clear strategy as to how to get there.
The problem is a much flatter economy than Morrison and conservative prime minister Malcolm Turnbull have been prepared to admit. Wage growth is barely keeping pace with inflation and the imminent loss of some 40,000 jobs from Australia’s doomed car manufacturing industry will only add to underemployment woes.
Revenues and tax collections are down and any gains in corporate profitability expected from the recent jump in global commodity prices is expected to be offset by poor non-mining sector investment.
Morrison could add a quick A$80 billion to government coffers by reining in negative gearing and capital gains tax concessions, as well as scrapping a 10-year A$50 billion corporate tax cut which the treasury has modelled will only deliver a 0.1% improvement in growth over two decades. But these measures threaten Turnbull’s voter base of business owners and high-net-worth individuals.
All eyes are now on Morrison’s next budget in May and whether it will show enough discipline to prevent the international rating agencies from stripping Australia of its triple-A credit rating, a move that would push its borrowing costs.
We are releasing the rankings day by day before revealing our Finance Minister of the Year. Tomorrow: a finance minister with his eyes on a bigger stage, but did he do too little in this job?