Budget takes $2.1BILLION hit as growth is slowed by droughts and bushfires along with sluggish global economy
- Federal Treasurer Josh Frydenberg cut forecast for budget surplus to $5billion
- New forecast compares with $7.1B predicted when budget handed down in April
- Economic growth forecast for 2019/20 has also been slashed to 2.25 per cent
- Downgrade to growth was blamed on weak momentum in the global economy
- Domestic challenges such as the effects of drought and bushfires also a factor
Australia’s budget surplus has been slashed by $2.1billion because of a revenue drop and a slow economy.
Treasurer Josh Frydenberg promised in the April budget a surplus would be delivered for the first time since 2007.
The budget, unveiled a month before the election, forecast a surplus of $7.1billion.
But Treasury’s Mid-Year Economic and Fiscal Outlook released on Monday has downgraded that to $5billion.
The economic growth forecast for 2019-20 has also been slashed to 2.25 per cent, down from 2.75 per cent.
Federal Treasurer Josh Frydenberg has cut the forecast for the 2019/20 budget surplus to $5 billion in his mid-year update
‘The Mid-Year Economic and Fiscal Outlook confirms the resilience of the Australian economy and that the budget is on track to return to surplus for the first time in 12 years,’ Mr Frydenberg said in a statement on Monday.
However, he was forced to reduce expectations for the size of the surpluses over the next four years due to a downgrade of tax receipt expectations.
Treasury suggested bushfires and the drought would hurt the economy.
‘Australia’s economy continues to show resilience in the face of weak momentum in the global economy as well as domestic challenges such as the devastating effects of drought and bushfires,’ it said.
Total tax receipts have been revised down by $3 billion in 2019/20 and by $32.6 billion over the four years to 2022/23.
The surplus for 2020-21 is now seen at $6.1 billion instead of $11 billion as previously estimated.
The downgrade to growth was blamed on weak momentum in the global economy, as well as domestic challenges such as the effects of drought and bushfires.
However, the treasurer is sticking to his 2.75 per cent growth forecast for 2020/21.
Wage growth forecasts were reduced, while the unemployment rate was expected to be higher than hoped at 5.25 per cent, rather than five per cent for this financial year and next.
While the mid-year update included a $623.9 million aged care package, there were no other new major spending measures to lift economic growth.
This will keep the pressure on the Reserve Bank of Australia to reduce the cash rate even further next year.
The RBA wants to see the jobless rate closer to 4.5 per cent to help lift wages growth.
Economists widely expect the central bank to cut the cash rate to 0.5 per cent when its board returns from its summer recess in February from its record low 0.75 per cent.