Federal budget $7b better than forecast: Deloitte.
The federal budget’s “rivers of gold” have started flowing again, with improvements in the global economy boosting Australia’s company taxes by billions of dollars more than anticipated, providing a near-perfect backdrop for tax collection just a week before the federal budget.
Deloitte Access Economics has released its final “Budget Monitor” before the treasurer, Scott Morrison, hands down the budget on 8 May, and it says recent months have seen a “humongous improvement in the budget”.
“Want to know how the government felt comfortable enough to ditch the Medicare [levy] increase?” the Deloitte Access report asks.
“In the four months to February, the rolling annual cash deficit shrunk by $15.4bn, a pace of improvement only seen twice in the history of the budget.
“Better still, there’s more where that came from. We project continuing outperformance versus official revenue forecasts pretty much across the board in both 2017-18 and 2018-19.”
Deloitte’s report says multiple variables in the global economy have finally started moving in lockstep, and Australia is benefiting hugely.
With the employment market still improving, companies and super funds have finally started running out of the losses they accumulated during the financial crisis, so good news about the economy is being “turbocharged” in terms of its effect on the tax take.
It means company tax revenues are 23.3% higher than they were 12 months ago, and that is feeding through to company tax. Company tax is $36.2bn higher than this time last year.
Income tax revenues are up 5.4%, so the income tax take is $10.6bn higher than this time 12 months ago.
Altogether, Deloitte forecasts the budget bottom line will be $7bn better than expected this financial year, and then by a further $7.2bn next financial year.
“That translates to underlying cash deficits of $16.6bn in 2017-18 and $13.3bn in 2018-19,” the report says.
“It’s been a long time between drinks, but a virtuous circle is notably improving the bottom line.”
But the report warns that the Turnbull government cannot afford to give away too much in personal income tax cuts on budget night – not if it wants to reach its planned budget surplus on 2020-21.
Deloitte says with the big boost in company taxes it looks likelier the government will return the budget to surplus as planned because even after ditching the Medicare levy increase, the budget will still generate a surplus of $3.8bn in 2020-21. But it won’t be much.
“So a small personal tax cut announced on budget night would leave a few bottle tops as a surplus,” the report says. “But we’d say a tax cut larger than that would mean no surplus in sight.”
Gareth Hutchens - The Guardian - Monday, 30 April 2018
