The Final Budget Outcome for 2017-18 is Australia’s best in a decade. While still in deficit at $10.1 billion, it is $19.3 billion less than expected when the budget was delivered in May 2017. The deficit represents 0.6 per cent of gross domestic product, which stands in stark contrast to the peak deficit under Labor of 4.2 per cent of GDP in 2009-10 when the deficit exceeded $50 billion.
The improvement in the 2017-2018 numbers is due to a stronger and growing economy, where receipts were $13.4 billion higher than expected and payments $6.9 billion lower than estimated. With 350,000 jobs created in the ’17-18 year – about 1000 new jobs a day – more individuals are paying tax and the increased economic activity is making companies more profitable.
Both personal income and company tax receipts were higher than expected, $2.4 billion and $6.8 billion respectively, with the rest of the improvement coming from superannuation fund taxes, excise and customs duties and GST receipts.
On the payments side, it was a combination of less people entering the NDIS than expected (which was also the case in 2016-17), some delays in state-led infrastructure projects and lower outgoings under the Job Seeker Support Programme as more people found employment in the strong labour market.
The increase in average real spending growth has been contained to 1.9 per cent per annum, which is the lowest level of any government in 50 years and less than half the average rate recorded under Labor.
Today, welfare dependency for working-age Australians is at its lowest level in 25 years. In 2017-18 there were 90,000 fewer people of working age on welfare than the year prior.
The overall strength of the Australian economy is reflected in the Final Budget Outcome with the key economic indicators of real and nominal GDP growth, employment growth and household consumption better than forecast. Employment growth was the real standout at 2.7 per cent, well above the 1.5 per cent forecast in the budget.
Commodity prices for some of our key exports including iron ore, metallurgical and thermal coal and LNG were also above budget assumptions.
With net debt forecast now to have peaked and with the budget on track for balance in 2019-20, it is clear our economic plan is working.
What is particularly pleasing in the Final Budget Outcome is that it follows our most recent national accounts, which show the Australian economy was growing faster than any G7 country and at its fastest rate since the height of the mining boom in 2012. That is why Standard & Poor’s last week reaffirmed Australia’s AAA credit rating and highlighted our “continued focus on fiscal prudence” and “better budget performance”.
A good illustration of the confidence global investors have in our economy was the successful completion by the commonwealth earlier this month of a $3.7 billion 2050 bond issuance, which was comfortably over-subscribed.
Yet despite this flow of positive economic data, we cannot as a nation be complacent.
Domestically, we need to continue our focus on productivity as a means to higher wages, and globally we need to continue to identify new export markets and encourage an open and rules-based trading system as an antidote to recent global trade tensions.
At the same time, Australia cannot afford a return to the high tax and spend agenda proposed by Bill Shorten. The Labor Party will choke productivity, embolden the union movement, reduce consumer and business confidence with higher taxes – particularly on retirees and small and medium sized businesses – and put at risk the value many people have accumulated in their homes with its attack on negative gearing.
The Australian economy does not operate on autopilot, and let’s be clear, Labor’s track record on debt and deficit is not one that inspires any confidence.
Josh Frydenberg is the Federal Treasurer