December 16, 2020
Colin Brinsden, AAP Economics and Business Correspondent
(Australian Associated Press)
It’s only been a couple of months since Treasurer Josh Frydenberg handed down his deficit-laden 2020/21 federal budget but already Australia’s fiscal position is beginning to brighten.
Economist Chris Richardson, who always keeps a keen eye on developments in federal budgets, expects this week’s mid-year review will show a better bottom line.
“Relative to the budget on October 6, a bunch of things are looking better,” Mr Richardson told AAP.
The Deloitte Access Economics economist says virus numbers in Australia have been strikingly low, while the economy is outperforming and bouncing back rapidly.
The number of of JobKeeper recipients are also falling fast and unemployment has remained below the eight per cent level Treasury had expected by now.
Mr Richardson also notes that consumer confidence – a pointer to future household spending – is at a 10-year high.
“The cheapest stimulus of all is confidence,” he said.
He expects the Mid-Year Economic and Fiscal Outlook – to give it its formal title – will show a $3 billion improvement in the 2020/21 budget deficit, rising to $15 billion by 2023/24.
However, it would still leave the deficit for this financial year at around $211 billion compared to the $214 billion record announced in October.
In an analysis, Mr Richardson said spending looks set to be revised down from savings on JobKeeper, while taxes are up with more people in work and company profits higher-than-expected, especially from iron ore exports.
This will help absorb new spending on COVID-19 vaccines and extensions to the JobSeeker coronavirus supplement and the HomeBuilder grants.
The price of iron ore is now over $US150 per tonne, its highest level in over seven years, compared with just $US55 per tonne forecast in the budget.
“You are starting to talk really massive dollars,” Mr Richardson said.
He said the iron ore price rise was in response to a number reasons – supply disruptions in the other big producer, Brazil, and low stockpiles at Chinese ports as the Asian giant stimulates its own economy.
However, Mr Richardson said investors also feared iron ore could become China’s next target in its trade tussle with Australia.
“We’ve lost money on everything from lobsters to wine,” he said.
“But we’ve more than made that up in overall terms thanks to iron ore and the taxman will be a considerable beneficiary of that.”
Even so, he noted that Treasury were conservative forecasters, so that may limit the good news on iron ore for now.