On Thursday (19 September), the Treasury released the final budget outcome for the 12 months to 30 June.
According to the budget outcome, the underlying cash deficit was $690 million for the 2018-19 financial year.
This represents $13.8 billion more than was estimated at the time of the 2018-19 budget in May 2018 and $4.2 billion more than it was forecast to be when this year’s budget was released in April.
The $0.7 billion underlying cash deficit represents zero per cent of gross domestic product (GDP).
This is the first time the budget has been “to balance” since the global financial crisis in 2007-08.
The Treasury outlined that this was largely the result of higher total receipts of $11.5 billion and lower total payments of $6.6 billion.
According to federal Treasurer Josh Frydenberg and Finance Minister Mathias Cormann, these were driven by “a growing economy with more jobs and stronger terms of trade than anticipated”.
However, 70 per cent of the $6.6 billion total cash savings was due to a significant underspend on the National Disability Insurance Scheme (NDIS).
While payments to the NDIS more than doubled in 2018-19 compared to the previous year (going from $4 billion in 2017-18 to $8.5 billion in 2018-19), it was $4.6 billion below what was expected, largely due to “slower than expected transition of participants into the NDIS and lower utilisation of participants’ individual support packages”.
Other savings came from:
- Lower-than-expected payments under the DisabilityCare Australia Fund (DCAF) as a result of ongoing negotiations on a DCAF National Partnership Agreement and reflecting payment schedules agreed with the states. This saved $1.3 billion.
- Lower-than-expected payments related to the provision of GST to the states and territories consistent with lower GST receipts, partly offset by the 2019-20 GST transitional top-up payment made in 2018-19. This saved $1.4 billion.
- Lower-than-estimated Family Tax Benefit payments, reflecting lower-than-expected annual average payment rates and reconciliation payments due to higher-than-projected income growth. This underspend totalled $700 million.
The budget outcome 2019
While real GDP grew by just 1.9 per cent in FY19, markedly lower than the forecast growth of 3 per cent, nominal GDP grew by 5.3 per cent over the year – significantly more than was forecast (3.75 per cent).
This was primarily the result of higher-than-assumed prices for key commodities, which more than offset the softer-than-expected real GDP growth.
Labour market conditions also grew over estimates, rising by 2.6 per cent (equating to 300,000 additional jobs being created), through the year to June quarter 2019, above the 1.50 per cent forecast. However, wage growth was below estimates at 2.3 per cent (compared to 2.75 per cent).
The Treasurer and Finance Minister particularly highlighted that more than eight out of 10 jobs created in the last year were in full-time employment with the proportion of those of working age in welfare “at its lowest level in 30 years”.
Net Future Fund earnings, which are excluded from the underlying cash balance, were also found to be $4.3 billion higher than expected at the time of the 2018-19 budget.
The 2018-19 net operating surplus was $8.7 billion, an $11.1-billion improvement on the deficit of $2.4 billion estimated at the time of the 2018-19 budget.
The 2018-19 fiscal balance surplus was $2.6 billion, a $10.0-billion improvement on the deficit of $7.4 billion estimated at the time of the 2018-19 budget.
Government expects to be ‘back to black’ next year
Speaking of the budget outcome in a joint statement, Mr Frydenberg and Mr Cormann welcomed the budget having “returned to balance for the first time in 11 years”, which they attributed to “the Morrison government’s economic plan and responsible budget management”.
“Our strong fiscal management has put the budget on a sustainable trajectory, ensuring that we can guarantee the essential services that Australians rely on,” the politicians said.
“The 2018-19 final budget outcome shows that we have kept spending as a share of GDP in 2018-19 at 24.6 per cent of GDP, below the long-run average of 24.7 per cent for the second consecutive year, while also providing record levels of investment in essential services like hospitals, schools and aged care.”
Over the financial year, the government provided $80.2 billion towards healthcare ($4.2 billion more than the previous year), approximately $20 billion in Australian schools, ($1.7 billion more than in 2017-18) and $19.8 billion in aged care ($2.0 billion more than in 2017-18).
“These outcomes demonstrate that the government’s economic plan is working and confirm that the budget will be back in the black and back on track for the 2019-20 year,” they said.
The Treasurer and Finance Minister went on to note that Australia had completed its 28th consecutive year of economic growth and maintained its AAA credit rating, adding that the free trade agreements and strong commodity prices for exports had help see the current account “move into surplus for the first time since 1975”.
“The final budget outcome for 2018-19 further demonstrates that the government’s economic plan is working to create more jobs and to ensure Australia can continue to afford the essential services Australians rely on.
“In the year ahead, the economy will continue to be supported by the government’s economic plan as outlined in the 2019-20 budget, including the largest tax cuts in two decades, and our $100-billion pipeline of infrastructure investment,” they said.
[Related: Government unveils budget for 2019-20]
Annie Kane is the editor of The Adviser and Mortgage Business.
As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts.