Australia: Government's coveted budget surplus could be slipping away, according to some economists - - PressFrom - Australia
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Australia Government's coveted budget surplus could be slipping away, according to some economists

10:56  22 october  2019
10:56  22 october  2019 Source:   abc.net.au

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A government budget is a financial statement presenting the government ' s proposed revenues and spending for a financial year. The government budget balance, also alternatively referred to as general government balance, public budget balance, or public fiscal balance

A budget surplus occurs when government tax receipts are greater than government spending. But, a government budget surplus could ironically lead to higher household debt. Some feel the idea of government borrowing is very wrong. But, it should be remembered successful firms borrow

Josh Frydenberg, Mathias Cormann are posing for a picture: Treasurer Josh Frydenberg and Finance Minister Mathias Cormann sit in the Tresurer's office in Parliament House with the 2019-20 Budget. (ABC News: Marco Catalano)© Provided by Australian Broadcasting Corporation Treasurer Josh Frydenberg and Finance Minister Mathias Cormann sit in the Tresurer's office in Parliament House with the 2019-20 Budget. (ABC News: Marco Catalano)

There is now a real risk the government's coveted budget surplus is at risk of turning into a sizeable deficit, according to several economists.

While it is too early to judge the final position of the budget, figures released by the Department of Finance last week show the budget is now back in deficit by $4.8 billion.

Now some economists doubt the government will be able to reach the projected surplus, including former Treasury official Warren Hogan.

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A surplus implies the government has extra funds; these funds can be allocated to pay debts, which reduces the interest payable and helps the economy in the future. A budget surplus occurs after a reduction in costs and spending or both. An increase in taxes can also result in a surplus .

When governments run budget surpluses , what is done with the extra funds? Is it possible for a nation to run budget deficits and still have its debt/GDP ratio fall? Give some examples of changes in federal spending and taxes by the government that would be fiscal policy and some that would not.

"What the latest figures show is the government's numbers are a little worse than they'd been expecting," he told PM.

While it is not unusual for the budget to appear weaker at the start of a new financial year, Mr Hogan said it is currently billions worse than the government originally forecast.

"It looks like the government's overall budget position, for the first two months of the year, is a couple of billion worse than what was projected."

A budget aiming for surplus

Roughly this time last month, Treasurer Josh Frydenberg said in question time the Coalition was pleased to announce it had balanced the government's books.

"Today the Coalition is proud to tell this house, and the Australian people, that the budget is back in the balance for the first time in 11 years," he said.

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Budget Surplus (BS) is the excess of the Government ’ s revenue (taxes) over its total expenditure, which If budget surplus is used to measure the effects of Fiscal Policy, then the BS can change if there is a change in the Autonomous private spending. According to Dornbusch and Fischer

A surplus budget can help a government to either pay down debts or to build up reserve funds. Either approach helps to improve the government ' s fiscal position - which is necessary in order to allow it to engage in positive deficit spending in a future period of economic decline.

At the time, strong prices for iron ore had boosted the take from company tax and better-than-expected employment growth lifted personal tax receipts.

But the latest data showed a slower-than-expected start for a budget designed to get the federal government back into the black.

One big reason, as AMP Capital's chief economist Shane Oliver explained, is workers have rushed out to claim their tax offset payments.

"You know, we have seen a big pull forward of people lodging their tax returns to take advantage of the tax cuts for low and middle-income earners," he said.

Economists said the rush forward to claim tax back may reverse later this financial year, which would put the budget in a better position.

But Mr Hogan warned the slowing economy is now also posing a threat to the government's budget bottom line.

"It's early days — it's only the first two months out of 12, so this can certainly turn around."

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Achieving a budget surplus by the end of the decade and every year thereafter “in normal times” was one of Osborne’ s most coveted economic goals. The warning came from the Institute for Fiscal Studies following the budget , in which Osborne was already facing a deterioration in growth forecasts.

"I don't think anyone will be saying that the budget surplus is not there and that we're going to have a deficit again this year, but there is certainly a trend for weaker outcomes."

What Warren Hogan means by a "trend for weaker outcomes" is that it is becoming harder to get a job and bag a pay rise. Big economic trends like that are threatening the government's budget goals.

The budget bottom line

Wages were one area, according to Mr Oliver, where the economy could underperform the government's projections.

"Wages growth probably won't be as strong as the federal government is assuming," he said. "They're assuming wages growth at 2.75 per cent through this financial year."

He said combined with lower commodity prices, stagnant wages could end up reducing the surplus the government is expecting.

"They're assuming a budget surplus of $7.1 billion. The risk is it could be below that, or we may actually find ourselves in a small deficit," he said. "Hopefully not, but that's a risk."

Warren Hogan told PM the deficit for the current financial year could be large.

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Some governments reward citizens in times of surplus by lowering tax rates, although this has been shown to be problematic because it can be People should be aware that numbers about the budget can be and sometimes are manipulated to push particular political, economic, or social agendas.

German budget surpluses are bad for the global economy . On that reckoning, the German government ’ s thriftiness accounts for a small but meaningful share of its growing current-account surplus ; perhaps as much as three percentage points of GDP over the past five years.

"The trend of a $2 billion miss through the course of the whole 12 months, will clearly see us remain in deficit because over a full-year period that will annualise out to a $12-billion miss and there's only a $7- or $8-billion dollar surplus in projections."

CommSec's chief economist Craig James said, according to his forecasts, the budget will remain broadly balanced, but he still cautioned about expecting a surplus.

"It's still more than likely the budget's going to remain in pretty good shape," he said.

"We will just have to see how it evolves over time — whether it gets down to the fabled surplus of $7 billion for this current financial year."

Monthly changes in the budget position are not appropriate indicators for the overall budget, according to a spokesperson for Finance Minister Mathias Corman, who made a statement to PM.

"This outcome should not be misconstrued or extrapolated as a trend in the overall budget position or expected final budget outcome," they said.

"Because of the historical monthly volatility in the budget position which results from the timing differences between when receipts are received and when payments are made, it is not appropriate to compare monthly outcomes or cumulative data across years."

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