Federal Budget spending down, revenue up: CommSec's Craig James

Federal Budget spending down, revenue up: CommSec's Craig James
Federal Budget spending down, revenue up: CommSec's Craig James
The Federal Budget remains on track to meet Government forecasts. Not only are rolling annual aggregates showing improvement, so are the so-called ‘profile’ positions estimated by the Department of Finance.

The Government continues to exercise spending restraint.
In fact expenses or payments were $4.2 billion below the so-called profile level or government estimates for this point in the year. Revenue also is lifting, just above government forecasts. And the rolling annual level of revenues is growing at a 3.8 percent annual pace – the fastest rate in almost three years.
Federal Budget spending down, revenue up: CommSec's Craig James

The Budget is currently in a stronger position than the government’s finance boffins have estimated. The good news is that improvement is coming from both sides of the balance sheet.

GST revenues are also lifting, currently growing at a robust annual rate of almost 6 percent. Clearly spending is lifting across the economy a point highlighted by the CommBank business sales index of economy-wide spending and the recent retail trade data. 

What do the figures show?  

The underlying Budget deficit for the twelve months to October 2016 stood at $38.27 billion (around 2.3 percent of GDP), down from $39.15 billion in the year to September.

Smoothed revenues (twelve months to October) were up 3.8 percent on a year ago – the fastest growth in 32 months. Expenses rose by 2.6 percent over the same period – the fastest growth in 14 months. 

In terms of the fiscal balance, the Department of Finance noted: “The fiscal balance for the year to 31 October 2016 was a deficit of $23,919 million, which is $4,002 million lower than the 2016-17 Budget profile deficit of $27,921 million. The difference results from lower than expected expenses and net capital investment, partially offset by lower than expected revenue.”

Revenues: “Total receipts were $58 million higher than the 2016-17 Budget profile.”

Expenses: “Total payments were $4,225 million lower than the 2016-17 Budget profile.”

The Government currently expects an underlying deficit of $37.081 billion for 2016/17 (around 2.3 percent of GDP).

Receipts from the Goods and Services Tax stood at $60.86 billion in the twelve months to October, up 5.9 per cent on a year ago, above the 4.7 per cent growth over the last twelve months and the second highest on record behind August 2016. The Government has forecast GST receipts of $63.34 billion for the entire 2016/17 year.

Actual GST receipts for the four months to October stood at $21.02 billion, below the Budget ‘profile’ of $21.45 billion.

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Federal Budget spending down, revenue up: CommSec's Craig James 

What is the importance of the economic data?

The Department of Finance releases the Government Financial Statements (Niemeyer Statement) almost every month. The statement allows investors to track the current Budget position and provides insights into the effectiveness of fiscal policy.

What are the implications for interest rates and investors?

The Federal Budget is on track to meet forecasts. Spending restraint is driving the improvement. Fiscal policy is more neutral at present, as is monetary policy.

There is no room for complacency. 

The Budget may be showing cyclical improvement, but in 2017 all political parties need to stay focused on fundamental tax reform to drive medium-term improvement in the fiscal position.  

 Craig James is the chief economist at CommSec.

Craig James

Craig James

Craig James is the Chief Economist at CommSec, interpreting ‘big picture’ economic and financial trends.

Federal Budget Government Spending

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