The Treasurer, Wayne Swan, today released the Federal Government's updated fiscal and economic forecasts in the
keenly-awaited Mid-Year Economic and Fiscal Outlook (MYEFO) document. The Treasury now forecasts that the economy's GDP
growth rate will be higher than previously forecast and that the jobless rate will be significantly lower. On the fiscal
aggregates, today's statement projects smaller budget deficits from 2010-11 and a peak in public sector net debt that
will be A$50 billion lower than the Budget projection.
None of these "revelations" comes as a major surprise - it had become obvious in recent months that the outlook for the
economy and the Government's fiscal position was substantially better than was expected when the Treasurer delivered the
Budget back in May. It does seem odd, though, that despite better economic growth forecasts and a lower projected peak
in the unemployment rate, the Budget deficit forecast for the current fiscal year is unchanged at nearly A$58 billion
(4.7% of GDP). The MYEFO document explains this apparent anomoly by indicating that it will take time for stronger
activity to be fully reflected in higher taxation receipts.
(To view graphs mentioned in this article please visit the following link: http://img.scoop.co.nz/media/pdfs/0911/Australiangov.doc
The release of the MYEFO statement today coincides with the first conclusive evidence that the Government has started
winding back the fiscal stimulus aggressively pumped into the economy since last October. Over the weekend, belatedly,
the Government announced a new price cap on houses eligible for the first home owners' grant (from 1 January), and there
was a scaling back of the A$4 billion home insulation program. The Reserve Bank started winding back it's emergency
policy settings last month - and will take a further step along this path tomorrow - so it had become untenable for the
Government not to follow suit. In our view, there will be a further recalibration of the Government's fiscal settings in
On the economy, the Treasury now projects GDP growth in 2009-10 of 1.5%, up significantly from the 0.5% contraction in
the economy projected at the time of the Budget. The official forecast for the peak in the unemployment rate now is
substantially lower at 6.75% (in the June quarter of 2010); the Budget forecast was for a peak of 8.5%. The Treasury
forecasts GDP growth of 2.75% in 2010-11, followed by 4% expansions in subsequent years (0.5% lower than the Budget
forecasts). J.P. Morgan's GDP growth forecasts are higher than the Government's in the near term, but broadly similar in
the out-years. Our projected peak in the jobless rate is slightly higher at 7%, but also occurs in mid-2010.
On the fiscal aggregates, the statement today projects a Budget deficit of A$57.7 billion for 2009-10 (4.7% of GDP),
virtually unchanged from the A$57.6 billion deficit projected in the Budget. For 2010-11, though, the deficit now is
projected at A$46.6 billion (3.6% of GDP), down from the A$57.1 billion projection in the Budget. The subsequent
deficits are lower by similar amounts. Our Budget deficit forecasts are slightly lower than the Government's, based
partly on our projections of better GDP growth in the near term.
The Treasury now predicts that the peak in Government net debt will be A$135.5 billion (9.4% of GDP) in 2012-13;
previously, the Government's forecast was that net public debt would peak at just over A$188 billion (13.6% of GDP).
Based on the Government's projections, our fixed income strategist estimates that ACGB supply will be about A$185
billion in mid-2013; this is down from the A$225 billion projected at the time of the Budget.