Labor has attacked the government’s economic credibility after the mid-year budget update revealed Australia’s economic growth, wages, household consumption and investment have plummeted since the April budget.
On Monday, the federal government revised its budget surplus forecast for this financial year down to $5billion, amid a forecast revenue slump.
Treasurer Josh Frydenberg cut the budget surplus for the 2019/20 budget by $2.1billion, down from the $7.1billion estimated in April’s budget.
Shadow Treasurer Jim Chalmers. Source: AAP
Shadow Treasurer Jim Chalmers said the “humiliating” result shows how the government has failed its own test to turn the economy around.
“Growth downgraded unemployment higher, wages growth weaker, business investment dismal, government's economic credibility destroyed. That's the midyear budget update in a nutshell,” he told reporters on Monday.
The economic growth forecast for 2019/20 has also been slashed to 2.25 per cent from 2.75 per cent.
Australian Finance Minister Mathias Cormann speaks during a press conference as he hands down the Mid-Year Economic and Fiscal Outlook 2019/20. Source: AAP
Wages growth is expected to flatline to 2.5 per cent, despite predictions it would grow to 3.5 per cent this year. Next year’s prediction has also been cut to just 2.75 per cent.
Household consumption and business investment have also slumped since April.
“The workers and families of Australia didn't ask for higher unemployment for Christmas, but that's what Scott Morrison has got for them 15,” Mr Chalmers said.
“The families and workers and pensioners of Australia didn't ask for weaker growth, higher unemployment, weaker wages, but that's what Morrison and Frydenberg have put in the stocking for Australians.
“Everything has been downgraded in this MYEFO, but especially the government's economic credibility.”
While the government expects to deliver the first budget surplus in 12years, the latest forecast of cumulative surpluses of $23.5billion over the forward estimates is down from $45billion.
The Mid-Year Economic and Fiscal Outlook (MYEFO) shows the government expects revenue will be down $3 billion on earlier projections, with forecasted revenue to be slashed by more than $32 billion.
The government said the hit to the budget was blamed on weak momentum in the global economy,
as well as domestic challenges such as the effects of drought and bushfires.
“Our devastating drought has already taken a quarter of a percentage point off GDP growth and reduced farm output by a significant amount over the last two year,” Mr Frydenberg said.
“Global trade tensions have weighed heavily on consumer and business sentiment with forecasts for global economic growth and that of our major trading partners downgraded in today's MYEFO. Despite these challenges, MYEFO demonstrates that the Australian economy continues to grow with the budget returning to surplus for the first time in 12 years.”
Net debt is projected to be $392.3bn this financial year, or 19.5 per cent of GDP.
Treasurer Josh Frydenberg hands down the Mid-Year Economic and Fiscal Outlook. Source: AAP
Total receipts have been revised down by $3 billion in 2019/20 and by $32.6 billion over the four years to 2022/23.
“The government is living within its means,” Mr Frydenberg said.
Finance Minister Mathias Cormann said wages continued to grow faster than inflation and employment growth “remains strong”.
“Disposable incomes are growing at their fastest rate in more than 10 years and we remain on track to return to surplus this financial year,” he said.
“That is even after significant revenue write-downs, after legislating significant income tax relief, after continuing to provide record funding for the essential services Australians rely on, and after the additional investment into key priority areas in this budget update.”
‘No progress in reducing unemployment’: ACOSS
The unemployment rate is also expected to be higher than first through at 5.25 per cent, as opposed to five per cent for this financial year and next.
The Australian Council of Social Services said the government has failed to make progress in reducing unemployment and the mid-year budget update confirms no progress will be made for the next two year.
“The main action taken this year to support the economy and jobs growth - $8 billion in tax cuts – hasn’t worked. Bringing forward more tax cuts would repeat the same mistake and deplete the revenue we need for essential services in future,” ACOSS CEO Cassandra Goldie said.
“Despite calls from the RBA, IMF and OECD to restore flagging growth in household and business spending, the Government continues to hold growth in public spending to ‘record lows’
“The government has again failed to raise Newstart, after 25 years without a real increase, despite the obvious need and leading economists citing the benefits in providing economic stimulus.”
Dr Goldie said the mid-year budget update also misses an opportunity to reduce hardship while stimulating the economy.
Australian Council of Social Service CEO Dr Cassandra Goldie. Source: AAP
“On the whole, the budget update contains very little good news for people on low incomes.”
Infrastructure, drought and aged-care priority areas
Meanwhile, the government is promising extra spending across infrastructure, drought-assistance and aged care.
The mid-year update included a $623.9million aged care package, including the release of an additional 10,000 home care packages, reducing the use of medicines as chemical restraint and additional dementia training and support.
Fast-tracking of infrastructure projects of $4.2bn over the forward estimates – including $400million in new money – were announced to accelerate a number of rail and road projects across the country with Queensland set to benefit the most.
While More than $300 million will be invested in the Drought Communities Program to help eligible councils to complete local capital works and drought relief projects.
“We're just, like you, praying and hoping that the drought breaks and the impact on farm GDP and growth has been very significant,” Mr Frydenberg said.
“It's knocked a quarter of a percentage off GDP but also it's required the Government to do what is expected of it, which is to continue to support those farmers and there's $1.3 billion of new measures that we've announced since the budget.”
The government has also signed an agreement with Papua New Guinea to provide a loan of US$300million through the Export Finance Australia in response to a direct request from the nation to help it deliver long-term economic reform.
Despite this, 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.
With APP...
