Smallest deficit in 14 months: Craig James
GUEST OBSERVER
Budget position: The Department of Finance released the April monthly financial statements. This note examines the latest data.
Budget improves: In the twelve months to April 2017, the Budget deficit stood at $36.7 billion (around 2.2 percent of GDP) – the lowest rolling annual deficit recorded in the past 14 months and better than the average deficit over the past year of $38.7 billion.
Lower-than-expected deficit: The Department of Finance says the “the underlying cash balance for the financial year to 30 April 2017 was a deficit of $36,078 million, which is $1,577 million lower than the 2016- 17 Mid-Year Economic and Fiscal Outlook (MYEFO) profile deficit of $37,654 million.”
The monthly Budget figures can provide insights on the broader economy and policy settings. If fiscal settings are tight, the Reserve Bank may allow easier monetary settings.
What does it all mean?
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 $3.2 billion below the so-called ‘profile’ level or government estimates for this point in the year. Revenue also is lifting with the rolling annual level of revenues growing at a 7.2 per cent annual pace – the fastest growth in almost four years and faster than growth in payments for the 24th straight month.
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.
Growth of GST revenues slowed in April, but as always for this time of year the timing of the Easter and school holidays complicate analysis.
What do the figures show?
In the twelve months to April 2017, the Budget deficit stood at $36.7 billion (around 2.2 per cent of GDP) – the lowest rolling annual deficit recorded in the past 14 months and better than the average deficit over the past year of $38.7 billion.
Smoothed revenues (twelve months to April) were up 7.2 per cent on a year ago – the fastest growth in 45 months. Expenses rose by 3.8 per cent over the same period – the lowest growth in five months.
The Department of Finance noted: “ The underlying cash balance for the financial year to 30 April 2017 was a deficit of $36,078 million, which is $1,577 million lower than the 2016-17 Mid-Year Economic and Fiscal Outlook (MYEFO) profile deficit of $37,654 million.
In terms of the fiscal balance, the Department of Finance noted: “The fiscal balance for the year to 30 April 2017 was a deficit of $30,037 million, which is $9,043 million lower than the 2016-17 MYEFO profile deficit of $39,080 million. The difference results from higher than expected revenue and lower than expected expenses.”
Receipts: “Total receipts were $1,008 million lower than the 2016-17 MYEFO profile.”
Payments: “Total payments were $3,222 million lower than the 2016-17 MYEFO profile.”
The Government currently expects an underlying deficit of $37.6 billion for 2016/17 (around 2.1 per cent of GDP).
Receipts from the Goods and Services Tax stood at $61.6 billion in the twelve months to April, up 3.7 percent on a year ago, but below the 5.4 percent growth over the last twelve months. At the Mid-Year review in December, the Government forecast GST receipts of $62.41 billion for the entire 2016/17 year.
Actual GST receipts for the 10 months to March stood at $52.499 billion, just below the Budget ‘profile’ of $53.031 billion.
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 but growth of annualised revenues is the fastest in almost four years.
The Reserve Bank would be encouraged by the status of fiscal policy. The Government continues to spend on infrastructure but is showing restraint on recurrent expenses.
Craig James is the chief economist at CommSec.