The 2018/19 Budget and the Economy

Let’s concentrate on the big picture – the details of the budget, generally seen as an election budget, are benevolent, designed to improve the Government’s chances of staying in power after the next election. Of course, every Federal Government budget represents a mixture of playing politics and looking after the financial management of the country. So, are the measures of this budget really in the best interests of the country’s financial position? This is a question that cannot be answered without consideration of politics, i.e. taking into account the whole range of views as to what are the priorities, needs and wants of the people. In fact, the state of the overall financial position of the country is to most voting people of less importance than the outcome for them personally or for their pet interests. But if we look simply at the state of the Australian economy and the fact that we have had almost ten years of budget deficits and therefore a growing debt burden that eventually has to be paid down. Whilst Government debt is low by current international comparison, normally expressed as a percentage of gross domestic product (GDP), it nevertheless requires some $2 billion of interest to be paid each year.

The Government budget position is in fact a lot better than even forecast a few months ago, with some $35 billion of extra inflows expected over the next four years, due mainly to higher tax income from companies and individuals which in turn is the consequence of a brightening world economic climate and strong employment growth at home. Now, the budget measures commit about half of this windfall to spread ‘goodies’, mainly in terms of tax relief, spending on infrastructure, medical handouts such as increased home care packages for seniors etc, etc. It could be argued that all this additional Government income should have been used to decrease the budget deficit and debt, foregoing ‘goodies’ this time round, but after all, there is to be an election before the next budget is handed down. Nevertheless, a large portion of the Government windfall is to be used to bring the budget shortfall into surplus a year earlier than previously projected and if it all works this is a significant step forward for the state of the economy. The next question is of course – will it work? The budget predictions for wage growth, the unemployment rate, GDP growth etc underpinning the budget outcome are by most observers seen as quite optimistic.