Mid-Year Economic and Fiscal Outlook (MYEFO) 2019-2020

16 December 2019

Treasurer Josh Frydenberg and Finance Minister Mathias Cormann released the Mid-Year Fiscal and Economic Outlook (MYEFO) today, revealing revenue write-downs of more than $32 billion since the 2019 Pre-election Economic and Fiscal Outlook (PEFO) was released in April. The Government has attributed the downgrades to weaker global economic conditions, as well as domestic challenges, such as drought and bushfires.

The MYEFO confirms the Government remains on track to deliver a surplus of $5 billion this financial year, down from the $7.1 billion estimated at PEFO. The Government is also expected to deliver surplus budgets over the next four years, totalling $23.5 billion. Net debt is projected to peak at $392 billion in 2019-20, which represents 19.5 per cent of GDP, before improving across the forward estimates and medium term. The Treasurer said the MYEFO demonstrated the “resilience of the Australian economy” and the Government’s “responsible fiscal management”.

While economic growth is expected to fall by 0.5 per cent to 2.25 per cent in 2019-20, this is expected to strengthen again to 2.75 per cent by 2020-21. The Treasurer observed that GDP growth in the first three quarters of 2019 has been stronger than it was in the second half of 2018, and remains well above the OECD average of 1.6 per cent. The recovery in economic growth is expected to be driven by personal income tax relief and an increase in spending on infrastructure.

The mid-year budget update reveals that state government GST revenue will decrease by $9.9 billion over four years, including $1.8 billion this financial year.

While the MYEFO shows that labour market condition remains strong, the unemployment rate is expected to increase by 0.25 per cent 5.25 per cent this financial year, before returning to 5 per cent over the forward estimates. Wage growth has also been downgraded to 2.5 per cent.

To help stimulate the economy, the MYEFO includes an additional $4.2 billion in spending to accelerate transport infrastructure projects over the forward estimates, with more than a quarter of the infrastructure funding set to go to Queensland. The MYEFO also includes new funding to support drought affected communities and to strengthen the aged care system. The Government has indicated that it remains committed supporting a stronger economy, through policies that drive earnings and economic growth.

The Federal Labor Opposition has called on the Government to put forward a “comprehensive plan” to support the economy, describing the MYEFO as a “missed opportunity”.

Key economic indicators:

Real GDP is forecast to grow at 2.25 per cent in 2019-20
Unemployment is forecast to rise to 5.25 per cent
An underlying cash surplus of $5 billion is expected in 2019-20, with the cumulative underlying cash surplus downgrade from $45 billion to $23.5 billion over the forward estimates
Net debt is projected to peak at $392.3 billion in 2019-20, 19.5 per cent of GDP, and will decline over the forward estimates
The Government’s tax-to-GDP ratio remains below the cap of 23.9 per cent

Further Reading

Religious Discrimination Bill

Last week, the PM and Attorney-General Christian Porter released the second draft of the Religious Discrimination Bill. Following approximately 6,000 submissions, the revised bill includes 11 key changes, including the expansion of the definition of a “religious body” who can hire or dismiss staff on religious grounds, in addition to narrowing the scope of medical practitioners who can make a “conscientious objection” to a medical procedure. The revised legislation still includes the so-called “Folau Clause”, making it discriminatory for a company with revenue above $50 million to limit an employee’s ability to express their religious views outside work. Shadow Attorney-General Mark Dreyfus said Labor would do its own consultation on the second draft to ensure the legislation does not compromise existing anti-discrimination laws. Public feedback is open until January 31, with plans to introduce the bill to Parliament in early 2020.

Social media regulation

Last week, the PM announced new powers and funding for the Australian Competition and Consumer Commission (ACCC) to monitor social media giants, in response to the consumer watchdog’s inquiry into the impact of digital platforms on Australia’s media landscape. This announcement came as part of a reform package, aiming to protect consumers and competition with ‘world-leading reforms’ while ensuring Australia maintains a successful digital economy. The PM has warned the companies they will face a mandatory code of conduct if digital platforms and media businesses are unable to agree to a voluntary code of conduct by November 2020. The Government will also look at unifying classification rules and Australian content rules for streaming devices. In addition, changes to privacy legislation will boost protections and increase penalties for breaches with the government creating a Digital Platforms Ombudsman and establishing a pilot scheme for the body that will resolve disputes between the services and users. Treasurer Josh Frydenberg has put the companies on notice, stating the Government was “not messing around” and “will not hesitate to act”.

UK Election

The Conservative Party was returned to Government in a landslide win in last week’s UK Election, winning a majority 365 seats in the House of Commons, and holding Labor to 203 seats. PM Boris Johnson went into the election with a promise to “get Brexit done”, and is set to lead the country out of the EU in early 2020. Australian PM Scott Morrison declared the victory was a win for the “quiet Britons” and congratulated his UK counterpart over twitter last week. During a phone call between the pair, Johnson agreed to fast track a free-trade deal between Australia and Britain as a “top priority”.