Mid-Year Economic and Fiscal Outlook (MYEFO) 2018-2019

17 December 2018

Treasurer Josh Frydenberg and Finance Minister Mathias Cormann have released the national Mid-Year Fiscal and Economic Outlook (MYEFO) today, labelling it proof the Morrison Government’s economic plan is working and confirming the Government will prepare to deliver a surplus in the next Federal Budget in April 2019.

The Budget is forecast to improve from a deficit of $5.2 billion this financial year to reach a surplus of $4.1 billion in 2019-20, with a surplus predicted to reach 1 per cent of Gross Domestic Product (GDP) by 2021-22. This predicted underlying cash deficit has fallen from the significantly higher figure of $14.5 billion forecast in the May Budget, and represents the lowest deficit since prior to the Global Financial Crisis.

Over the four years from 2018-19, the underlying cash surplus is expected to rise to $30.4 billion – almost double the May Budget estimate. Treasurer Frydenberg said the return to surplus was a result of “the strong economy and the government’s sound fiscal management”, with stronger-than-expected collections from individual taxes and company tax and a surge in mining industry profits.

These results follow a period of slow wage growth and unexpected downturn in economic growth during the September quarter, when GDP growth fell to the lowest rate in two years. Today’s figures rely on a predicted rise in mining investment and increases in household consumption and non-mining business investment. Meanwhile, “subdued household income growth, tighter-than-expected credit conditions and housing price falls could cause consumer spending and dwelling investment to be weaker than forecast”, according to the MYEFO.

The figures reportedly accommodate a yet-to-be-announced suite of tax cuts and increased spending in the lead up to the next Federal Election. When asked about the Government’s tax plans, Minister Cormann commented that “It is no secret we are committed to lower taxes as part of our plan to strengthen the economy, create more jobs and ensure that Australians have the best possible opportunity to get ahead”.

Treasury’s updated forecasts have revealed that GDP is expected to grow by 2.75 per cent this financial year, downwardly revised from the previous Budget forecast of 3 per cent. The drop has been attributed to falling agricultural exports on account of drought conditions in the eastern and southern states, but is predicted to rise to 3 per cent the following year and continue to rise over the forward estimates.

Notably, the Government has announced more than $552 million in additional funding for aged care services, which will provide for an extra 10,000 high-level home care packages to facilitate in-home nursing and related services. The funding will also provide for an additional 5,000 level three and 5,000 level four care packages.

Key economic indicator forecasts:

Real GDP is forecast to grow by 2.75 per cent in 2018-19.
Unemployment is forecast to hold at 5 per cent over the forward estimates.
An underlying cash deficit of $5.2 billion is expected in 2018-19, before improving to a forecast surplus of $4.1 billion in 2019-20 and $19.0 billion in 2021-22.
Net debt is anticipated to fall from 18.2 per cent of GDP in 2018-19 to 14.3 per cent by 2021-22, reaching a low of 1.5 per cent by 2028-29.