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The good news is that there is still expected to be growth in new home building and renovation, but not much. Photo: Louie Douvis
So Treasurer Scott Morrison will never deliver a budget surplus – but the general fixation with the debt and deficit thing and yet another blowout therein is not the important part of today's mid-year economic update.
If Treasury is any good at understanding what's happening in the economy and where it's going (I know, I know …), the bits that actually matter are in the attached chart.
Treasury is saying the housing construction boom ends this year. That's the boom that has carried much of the economy since resources investment tanked.
The good news is that there is still expected to be growth in new home building and renovation, but not much – 2 per cent next financial year compared with a fat 8.5 per cent this year. But keep in mind that the trend measure for dwelling approvals has been falling for seven months in a row.
So without strong home building, what's supposed to lift economic growth?
There is faith in real consumer spending continuing to rise by a quarter percentage point a year, despite flat real wages growth. That means continuing reliance on Australians reducing their savings ratio – something that was easy to do when the wealth effect of higher housing prices was helping, but might not be so easy when that's no longer the case for most folks.
And then there are those missing animal spirits that are supposed to drive non-mining investment. That's the big one, the missing ingredient for a successful, sustainable transition.
Former treasurer Joe Hockey's budget forecast of 4 per cent growth this financial year looked wrong when he made it in May. It's the very problem the Reserve Bank of Australia had been banging on about, but Hockey wasn't listening to the RBA.
Today's mid-year economic and fiscal outlook (MYEFO) confirmed the folly, with non-mining investment this financial year now expected to contract by half a per cent. The absolutely heroic forecast of 7.5 per cent growth next financial year has been cut to 4.5 per cent.
Yes, there are reasons to hope, but precious little in the way of evidence to suggest that 4.5 per cent can be relied on.
The new forecasts also owe a lot to faith over evidence that the emerging economies kick on in the next couple of years. Treasury reasonable forecasts Chinese growth with be trimmed by a quarter percentage point each year – not a bad thing during that economy's transition, but somehow the rest of the emerging world will pick up the slack. Or so we hope.
All the claimed faults of former treasurer Wayne Swan's budget forecasting now officially apply to the coalition's. No, the government really isn't in control of the economy, steering a straight passage by design. It's more a matter of hanging on to the tiller as the boat is tossed about by prevailing winds and tides and hoping to at least steer clear of the rocks.
