A surge in company tax is expected to push budget revenue $9.2bn higher in 2018-19 than expected in the May budget, according to Deloitte Access Economics’ latest forecast.
The positive news sets the Morrison government up for a quicker return to surplus or gives latitude for pre-election sweeteners such as bringing forward personal income tax cuts as it prepares the midyear economic fiscal outlook, which is due in December.
In the latest edition of its budget monitor, Deloitte estimates company tax will raise almost $100bn this year, up $8.4bn on the 2018 budget forecast. The superannuation tax take is also up $1bn on forecasts.
As a result, Deloitte estimates the underlying cash deficit will be $4.9bn in 2018-19, the smallest deficit since the global financial crisis, followed by a small surplus of $4.2bn in 2019-20.
In September, Treasury informed the government that in 2017-18 tax receipts were $13.4bn higher than expected, pushing the deficit down to $10.1bn last financial year.
Deloitte noted the substantial role bracket creep was playing in budget repair, a point also made recently by the Parliamentary Budget Office.
Increased income tax from wages rising with inflation is estimated to amount to $4.6bn in 2019-20, $7.8bn in 2020-21 and $11.2bn in 2021-22.
“So even though weak wage growth means bracket creep is only creeping along, it is still enough to mean the taxman will grab a bigger slice of pay packets,” Deloitte said.
But Deloitte predicts the revenue surge will slow in 2019-20, with revenues only $2.1bn ahead of Treasury predictions.
It cited weakening bank profits and the fact that coal and iron ore prices were being kept high only by Chinese stimulus in the construction market as growth weakens.
Deloitte noted that “while the economy is shovelling money in the front door of the tax office, the approaching election means some of that windfall is being promptly shovelled out the back door”.
Since Scott Morrison took the Liberal leadership in August and Josh Frydenberg succeeded him as treasurer, the government has made a series of big spending commitments.
These include an extra $4.6bn over 10 years to Catholic and independent schools, a new GST floor to cost $9bn over 10 years, increased drought funding and a royal commission into aged care.
“Policies announced since the budget have already cost more than $0.4bn this financial year, rising to a $1.4bn hit to the 2019-20 bottom line,” Deloitte said.
“All up, and absent further policy changes (such as extra personal tax cuts announced ahead of the election), we forecast cash underlying surpluses of $14.1bn in 2020-21 and $16.1bn in 2021-22.”
The Coalition has in practice abandoned its fiscal rule of ministers needing to find corresponding savings before the government will commit to new spending, with no savings identified to pay for the increased schools funding.
On 19 November, Frydenberg refused to rule out the possibility that the government would use Myefo to bring forward its income tax cut plan, and noted that the Coalition had already brought forward tax cuts for small and medium businesses.
“What we have seen overall with the economy – and this will obviously be reflected in the next round of national accounts and in budget numbers – is the Australian economy is growing strongly,” he said.
