Australia’s fiscal coffers are rapidly refilling as high commodity prices and near-full employment bring windfall tax revenue, raising the possibility of the country recording its first budget surplus in 15 years.
(Bloomberg) — Australia’s fiscal coffers are rapidly refilling as high commodity prices and near-full employment bring windfall tax revenue, raising the possibility of the country recording its first budget surplus in 15 years.
With just over a week to go until the budget is released, Finance Minister Katy Gallagher acknowledged there’s been “significant improvement” in the fiscal position, while avoiding answering a direct question about whether the books would be back in the black. Bloomberg Economics’s James McIntyre reckons there’s an 80% chance the budget will post a surplus in the current fiscal year.
Australia’s underlying budget position was A$23.3 billion ($15.5 billion) better than forecast in the nine months through March, Department of Finance figures showed Friday. Treasurer Jim Chalmers will hand down the budget on May 9.
“Jim and I have been clear that we would see a significant improvement in the bottom line in the near term,” Gallahger told reporters on Sunday. “But that doesn’t take away from pressure that is coming at us over the forward estimates and over the longer and medium term.”
Australia’s budget has been bolstered by commodity prices easily outpacing Treasury’s ultra-conservative long-run average assumptions of $55 a ton for iron ore and $60 a ton for thermal coal. On top of that, unemployment hovering around a 50-year low has swelled the tax take from workers.
Independent economist Chris Richardson, a former Treasury official, said the bottom line underscored how “stunningly strong” the budgetary good news is for Australia at present.
“There’s no economic difference between a billion in surplus & a billion in deficit, but it’s a A$204 billion turnaround in 25 months,” he said on Twitter.
At the height of the pandemic, Australia ran a budget deficit of A$134.2 billion, or 6.5% of gross domestic product. Yet massive Covid-era fiscal and monetary stimulus saw the economy roar out of lockdown and employment surge.
Russia’s invasion of Ukraine in February 2022 sent commodity prices soaring — Australia was one of the few economies to benefit from the war — and China’s scrapping of Covid Zero policy also helped support iron ore and other exports. China is Australia’s biggest trade partner.
St. George Senior Economist Pat Bustamante forecasts the 2022-23 budget bottom line to be a small surplus of 0.1% of GDP, compared with an estimated deficit of 1.5% of GDP at the October budget.
“This would be the first time since 2007-08 that the budget is in surplus,” he said, while cautioning it will be a one-time windfall as the central bank’s 3.5 percentage points of interest-rate hikes in the past year weaken the economy.
“Under the weight of higher interest rates and accelerating rents, we expect the economy to slow and the unemployment rate to increase in 2023-24. This will be a drag on the budget.”
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