Here's what we could expect for the 2018 Federal Budget

Tue, 27 Feb 2018  |  

This article first appeared on the Yahoo 7 Finance website at this link 


Here's what we could expect for the 2018 Federal Budget

Treasurer Scott Morrison is about to do cartwheels down the corridors of Parliament House, such is the unexpected improvement in the budget position over the past year.

A surprise surge in company tax collections, a lift in goods and services tax receipts and an undershoot in planned government spending has seen the forecast for the budget deficit for the first seven months of 2017-18 come in more than $6 billion lower than was assumed when the Mid-Year Economic and Fiscal Outlook was released in December. If this trend continues through to the end of the financial year, the budget deficit could fall to around $15 billion which would be the smallest deficit in the current cycle, that is, since the last budget surplus was recorded in 2007-08 and all of the improvement will have been driven by a surge in tax receipts.

More importantly, the improved budget momentum will almost certainly parlay through to the so-called out-years of the budget which will leave to smaller deficits and larger surpluses.

While there is always plenty of debate about the economic parameters underpinning the budget forecasts over the 3 or 4 years of the forward estimates, when Morrison hands down the budget on 8 May, he is likely to announce that budget position over the four years has markedly improved.

Included in the budget will be news that the 2018-19 deficit will be revised down from $20 billion to under $10 billion and in 2019-20, a surplus will be forecast. Importantly, the 2020-21 surplus, currently estimated to be around $10 billion, could be revised as high as $15 billion or even more on the basis of no policy change as the company tax and other revenue floods in.

It is at this point where politics will likely trump economics.

After more than a decade of continuous budget deficits, which will have totalled close to $400 billion, economic policy conservatism would argue for the government to lock in decent sized surpluses for at least to few years before offering to blow the windfall gain. Surpluses, albeit only moderate ones, would allow the level of debt to be trimmed and with that, government debt interest payments could be reduced in what looks like an environment of rising global interest rates.

With the government trailing badly in the polls and the Federal election scheduled for the next year or so, there seems little chance this conservatism being followed. It is more likely that on budget night, Mr Morrison will hand down a budget that will be designed to win votes with the proverbial offering of a fist full of dollars. Get set for a budget night which includes announcements of income tax cuts and spending targeted to a range of marginal seats.

The message will be “we are delivering a budget surplus and giving tax cuts”.

For some, it will no doubt sound impressive.

It is likely to see the government claw back some electoral support, at least in the short term. It will be interesting to see whether the policy ‘sugar hit’ will works on enough members of the electorate who have heard it all before.

Or whether, even they do actually want to see larges surpluses and cuts to government debt, rather than what will be just a few dollars more in their pay packets.



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As house prices fall across Australia, should we be worried for our economy?

Tue, 13 Mar 2018

This article first appeared on the Yahoo7 Finance website at this link: 


As house prices fall across Australia, should we be worried for our economy?

Are you a home owner?

If you are in Sydney, Perth and Darwin, you are losing money at a rapid rate.

In Melbourne and Canberra, prices are topping out and there is a growing risk that prices will fall through the course of this year. If your dwelling is in Brisbane or Adelaide, you are experiencing only gentle price increases, whilst the only city of strength is Hobart, where house prices are up over 13 per cent in the past year.

The house price data, which are compiled by Corelogic, are flashing something of a warning light on the health of the housing market and therefore the overall economy. For the moment, the drop in house prices has not been sufficient to unsettle the economy, even though consumer spending has been moderate over the past year.

The importance of house prices on the health of the economy is shown in the broad trend where the cities that have the weakest housing markets tend to have the slowest growth in consumer spending and are the worst performance for employment and the unemployment rate. The cities with the strongest house prices have strong labour markets and more robust consumer spending.

Trump could cause the next global recession: here's how

Wed, 07 Mar 2018

This article first appeared on the Yahoo7 Finance website at this link: 


Trump could cause the next global recession: here's how

The Trump trade wars threaten the global economy. This is not an exaggeration or headline grabbing claim, but an economic slump based on a US inspired global trade war is a distinct and growing possibility as it would dislocate global trade flows, production chains and bottom line economic growth.

Up until a few weeks ago, there was a strong enthusiasm for the economic policies of US President Donald Trump. Tax cuts and planned infrastructure spending were seen to be good for the US and world economies. US stocks and many around the rest of the world rose strongly, to a series of record highs. At the same time, bond yields (market interest rates) surged as the market priced in interest rate hikes and inflation risks from the ‘pro-growth’ policies. It was seen to be good news.

Very few, it seems, were worried about the consequences for US government debt and the budget deficit from this cash splash, especially when the US Federal Reserve was already on a well publicised path to hiking interest rates.

About a month or two ago, a few of the more enlightened and inquisitive analysts started to focus on the fact that the annual budget deficit under Trump was poised to explode above US$1 trillion with US government set to exceed 100 per cent of annual GDP.

A debt binge fuelled by tax cuts was a threat to the economy after the temporary sugar hit.