INSIGHT

Federal Treasurer Scott Morrison delivers budget 2017

May 2017

Federal Treasurer Scott Morrison delivers budget 2017

"The underlying cash balance will improve from a forecast deficit of $29.4 billion in 2017–18 to a projected surplus of $7.4 billion in 2020–21"

Treasurer Scott Morrison:

Federal Treasurer Scott Morrison dazzles with precarious balancing act

The Treasurer needs what anyone in the business community will quickly identify with – quick wins.

He has built a budget that relies on economic growth not evident yet, on falling unemployment that has proven to be surprisingly sticky at elevated levels, and on a confident consumer that has frankly been absent for a number of years.

And so Morrison needs Australians to feel we are on the cusp of good times. He needs small businesses to invest for growth, and for boardrooms to look across the globe and see a world recovery that is well underway, and invest accordingly.

He needs all this activity to feed to wage pressure to give workers an income boost so that they will get out and spend, and in turn bolster inflation to really get the economy humming.

And he got his first quick win when ratings agency Moody’s declared just hours after the Budget was released that it was supportive for Australia retaining its AAA credit rating.

As predicted, after unveiling a bank levy designed to fund budget repair, Australian Banking Association chief executive Anna Bligh, criticised the proposed $6 billion bank tax as "a direct attack on jobs and growth. It is a tax on lending and means banks will lend less."

To help fire up the economy the Treasurer has allocated $75 billion for infrastructure spending, but that is a medium to long term measure. There was also an affordable housing package that over time may impact, and the return to a fiscal surplus is back on the agenda for FY21.

But overall there is a lack of measures to get the sentiment rise that the Treasurer needs to get people spending.

The underlying cash balance will improve from a forecast deficit of $29.4 billion in 2017–18 to a projected surplus of $7.4 billion in 2020–21.

And that's because he is hoping to ride off the coat-tails of the global economy. Economic growth from major trading partners is forecast by the government at 4% in 2017 and 2018, while global growth over the same period is forecast at 3.25% and 3.5% respectively, which is slightly lower than Citi’s forecasts.

Take your next step with Citigold

Enquire now

Compare that to the government's growth forecast for Australia of 2.75% and 3% and it's clear the Treasurer hopes the positive feelings of goodwill from the global community to growth will settle on Australia and provide the positive vibrations needed to get out and spend.

If that hope fails then Australia will be a global underperformer, which may make the government's assumption of an increase in wage growth from 2% to 3% within two years hard to achieve.

And without that wage growth the government may need to step in with more aggressive stimulatory measures to boost economic activity, and potentially throw into doubt the proposed return to surplus, and the AAA credit rating.

Budget Forecasts & the Return to Surplus

Budget Forecasts & the Return to Surplus

Post-Budget commentary by ratings agency Moody's:

"Taking the budget and our forecasts into account, we assess Australia's Fiscal Strength as very high."

Important Information:

Note: The Federal Budget is not set in stone, and could change as legislation passes through parliament.

Any advice is general advice only. This document was prepared without taking into account your objectives, financial situation, or needs. Before acting on this advice you should consider if it's appropriate for your particular circumstances. You should also obtain and consider the relevant Product Disclosure Statement and terms and conditions before you make a decision about any financial product, and consider if it's suitable for your objectives, financial situation, or needs. Investors are advised to obtain independent legal, financial, and taxation advice prior to investing. Investment products are not available to US people and may not be available in all jurisdictions. This material is taken from sources which are believed to be accurate, however Citibank accepts no liability of any kind to any person who relies on the information in it.

© 2019 Citigroup Pty Limited. All rights reserved. ABN 88 004 325 080, AFSL No. 238098, Australian credit licence 238098. Citi, Citi and Arc Design and other marks used herein are service marks of Citigroup Inc. or its affiliates, used and registered throughout the world.