MYEFO does not transform fiscal outlook

The reduction in the budget deficit estimated for the current fiscal year and the small reductions in projected debt are welcome features of MYEFO but by no means transform the fiscal outlook, the Centre for Independent Studies says.

The government’s decisions since the 2017/18 budget were a net negative and this year’s improved bottom line in MYEFO comes entirely from parameter variations, primarily increased tax receipts and slower than expected welfare increases

“The changes resulting from this budget update are mostly small and do not significantly alter the profile of the key aggregates such as the deficit, expenditure and revenue,” economist Robert Carling says.

“If anyone was looking for scope for significant personal income tax cuts, they won’t find it in this budget update.

“The criticisms levelled at the budget in May remain valid today. In particular, the government is relying heavily on tax increases and automatic revenue growth to bring the budget to balance.”

Mr Carling points out that on the spending side, although the government boasts of growth in real spending growth below 2% a year, this is a projected four-year average.

“Real spending growth is in fact above 2% this year and next,” he says.

“The projected four-year average below 2% depends on very low growth rates in the third and fourth years of the estimates period, which experience tells us are unlikely to be achieved.

“The projected return to budget balance in 2019-20, although possible, remains fragile and highly conditional on revenue growth.”

Robert Carling is a Senior Fellow at the Centre for Independent Studies