Today, six days before Christmas, the government delivered its midyear economic and fiscal outlook (Myefo) budget update.
It showed a worsening deficit, by almost $11bn over four years, and debt is expected to peak in 2018-19 – one year later than expected.
But the treasurer confirmed he still plans to deliver a surplus by 2020-21. Given three previous treasurers have promised surpluses, he did add that the numbers were projections.
Tony Abbott’s nanny childcare pilot program has been cut and, as confirmed earlier, his Green Army employment program, saving $224m.
The Asset Recycling Fund has also been abandoned and savings of $154m have been booked for not going ahead with the same sex marriage plebiscite.
The government also expects to save $2.1bn over four years in the welfare fraud prevention crackdown, as promised in the pre-election budget.
But there is more money to increase politicians’ staffers across the parliament ($35.8m) and more money for a third staffed electorate office in very large electorates.
The three main credit agencies said the Myefo would not change their thinking much either way. They continued to assess the Australian position. S&P remains pessimistic but no immediate change, Moody’s expects bigger deficits than the government had projected.
All in all, the gentle downward trend continues. Scott Morrison kept talking about requiring partners in parliament to play ball. Chris Bowen said he had already supported some government savings but Labor would not support unfair changes. Bowen described the projected surplus as “wafer thin” and it would blow over in a strong breeze.
So that is it for me. Thanks to the brains trust: Greg Jericho, Katharine Murphy and others.
Thanks for your company. Have a great Christmas break and here’s to coming back refreshed in the new year.
Good afternoon.
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Richard Di Natale, Greens leader:
There is one message in this Myefo for everyday Australians: unless you’re a big corporation or Liberal party donor, you don’t matter.
Malcolm Turnbull’s plan to hand out tax cuts to the wealthiest Australians while wage growth remains stagnant is a slap in the face to ordinary Australians doing it tough.
There is nothing in the Turnbull government’s economic program that addresses the major risks to the economy from the housing bubble or that eases the growing gap between the rich and everyone else.
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Standard & Poors: We remain pessimistic ... but no immediate effect on ratings
An statement from S&P Global:
Global Ratings said today that the Australian government’s midyear budget update has no immediate effect on the credit rating or outlook on the commonwealth of Australia (unsolicited ratings AAA/Negative/A-1+).
The government’s worsening forecast fiscal position, as outlined in its latest budget projections earlier today, further pressures the rating.
We remain pessimistic about the government’s ability to close existing budget deficits and return a balanced budget by the year ending 30 June 2021.
Over the coming months, we will continue to monitor the government’s willingness and ability to enact new budget savings or revenue measures to reduce fiscal deficits materially over the next few years.
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Message for Govt: Stop blaming Parliament for not passing unfair zombie measures and take the lead by find'g common ground @cassandragoldie
— ACOSS (@ACOSS) December 19, 2016
This is lazy policy making, going for easy targets, mainly low income earners, with no structural reform plan for nation: @cassandragoldie
— ACOSS (@ACOSS) December 19, 2016
The govt has stubbornly kept $7bn in unfair zombie cuts that have no hope of passing Parliament: @cassandragoldie pic.twitter.com/2sbBNOsOIi
— ACOSS (@ACOSS) December 19, 2016
The Business Council of Australia’s Jennifer Westacott says Myefo underlines that Australia can continue to muddle along and “sleepwalk into lower living standards” or seize the opportunity to deliver a stronger budget.
Why?
The MYEFO update makes it clear we must intensify efforts to meet the twin budget objectives of reducing the rate of growth in spending and accelerating economic growth. This means continuing to redesign major spending programs to improve the quality of spending, cut waste and deliver better value for taxpayer dollars. At the same time, we must better equip the economy to support jobs and prosperity.
Politicians must move on from the phony, dead-end argument that supporting growth comes at the cost of fairness. Growth and fairness go hand in hand because growth creates economic opportunity.
Only economic growth can create jobs, higher wages and the revenue to pay for the health, education and welfare services Australians value.
And only economic growth can ensure this country becomes more capable each year of caring for all of its citizens, no matter what their circumstances.
We can no longer afford to ignore or be complacent about this reality.”
Increase in parliamentary staff costs about $9.1m a year for 33 positions, or about $275,000 for each job.
— David Crowe (@CroweDM) December 19, 2016
Pull in your belt, except politicians
The government has set aside another $35.8m over four years to increase personal staff allocations by 33 for all MPs and senators across the parliament .
The government will spend an $8.1m for a third staffed electorate office for members with electorates larger than 350,000 square kilometres.
The same-sex marriage plebiscite of course, failed to proceed through the parliament.
The government has booked a saving of $154m.
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Economist Stephen Koukoulas has written on the Myefo. Here is a kernel.
In addition to blowing the budget deficits out by tens of billions of dollars a year, Morrison has pushed out the return to surplus to 2020-21, some two years later than Hockey and is now forecasting net government debt to reach a 60-year high of 19% of GDP. Recall that 1% of GDP on 2020 dollar terms is about $20bn.
The question now is not whether the ratings agencies will downgrade Australia but whether there will be numerous downgrades over the next few years.
The curious thing about the debt and deficit widening of the last few years is that it has been driven by a rise in government spending together with a shortfall in revenue.
Government spending as a share of GDP under the Morrison Myefo forecasts is projected to be 25.2% of GDP in both 2016-17 and 2017-18, respectively, compared with the Hockey 2014 estimates of 24.7% and 24.8%, respectively. Accordingly, government spending is an average 0.5% of GDP higher each year than projected by Hockey.
At the time of the 2014 budget, government revenue as a proportion of GDP was forecast to be 24.4% in 2016-17 and 24.9% in 2017-18. The Morrison Myefo forecasts are for revenue to be 23.3% and 23.8%, respectively, a shortfall of an average 1.1% of GDP in each year.
Morrison has failed to address either spending, which is significantly higher than in the 2014 budget, nor revenue, which is clearly lower.
So while revenue coming into government has dropped, there has also been a drop in what the government pays out.
The drop in government payments is due partly to the following factors:
- Payments related to the childcare benefit, childcare rebate and childcare subsidy are expected to decrease by $724m in 2016-17 or $7.6bn over the four years to 2019-20. (We do not have an explanation as to why.)
- Payments to income support for seniors are expected to drop by $656m in 2016-17 or $2.7bn over four years. Why? Because of slower than expected growth in the number of of pension recipients and lower than expected average pension payment rates.
- Payments for the research and development tax incentive are expected to drop by $151m this year or $580m over four years, because demand for the program is down.
- Payments for the carers are also down, expected to cut payments by $127m this year or $1.9bn over four years because of lower growth in the number of recipients.
Why? I have no answers as yet but I am seeking them. Any ideas, let me know.
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The Labor finance shadow, Jim Chalmers, rejects suggestions the opposition should chip in and support government savings measures more. He says the government could dump the $50bn corporate tax cuts with a stroke of a pen if it wants to really repair the budget.
No opposition in recent memory has put more effort into proposing alternative savings when we oppose the savings the government has put.
We took $130bn worth of savings to a federal election, which is unheard of in this country.
The effort that we put into proposing alternatives when we won’t cop smashing Medicare or we won’t cop smashing the most vulnerable people in this country to repair the budget. We believe in budget repair that’s fair. We have pitched up those alternatives for that reason because we do think there’s a better way.
Both sides agree that we need to fix the mess that the government has made of the budget. We think there’s a better way to do it.
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Chris Bowen is asked, if Labor would reconsider supporting some of the government’s measures to repair the budget.
It was a theme of Scott Morrison’s presentation that he needs “partners in parliament”.
Moody’s also made the point that legislating savings measures remains “challenging”.
But Bowen says Labor had a responsibility to its own voters.
The treasurer was boasting a few minutes ago he passed two-thirds of the government’s savings objectives, that’s right.
That’s with our support. Some of them are our ideas, which they then adopted. So we have shown that we can work with the government in the parliament to pass sensible savings measures, the treasurer himself said two-thirds has been passed. Yep and that was with, by and large, our support.
But what we won’t do is sell out those Australians who voted for us and rely on us to protect them. We won’t say that it’s OK for unemployed people to wait an inordinate amount of time for basic support. We won’t say it’s OK that Australians should have the highest pension age in the world. We won’t say it’s OK because it’s not OK.
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From AAP, reaction from the ACTU:
Trade unions say the government still refuses to acknowledge it has a revenue problem and continues to squib tax reform.
The ACTU secretary, Dave Oliver, criticised the prime minister, Malcolm Turnbull, for delivering spending cuts that hit ordinary Australians, as well as presiding over an economy in reverse.
“Mr Turnbull could give all Australians some good news ahead of Christmas and outline a plan for growth based on more well-paid, secure jobs,” he said.
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From AAP, reaction from the business sector:
Business believes the midyear budget update is a fresh reminder for parliament to work together to get the nation’s finances back in the black.
The review, released on Monday, shows the bottom line worsening over the next three years but still with an expectation of a return to surplus by 2021.
“The opposition and crossbenchers share with the government responsibility for the slow progress in balancing the budget and reducing the intergenerational burden of deficits,” Australian Chamber of Commerce and Industry CEO James Pearson said.
Pearson praised treasurer Scott Morrison for avoiding the temptation to reach for “economy-crushing” tax increases.
“It was now clear a young Australian born in 2008 may need to wait until their teenage years before they experience a budget surplus,” he said.
“Prolonged budget deficits mean long into their adulthood, that child will be paying the price for the collective reluctance of our current generation of politicians to make the tough decisions needed to curb spending.”
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Labor finance shadow Jim Chalmers calls the statement a triple-F performance from the Coalition.
If Australia loses its coveted AAA rating, that means, that means higher costs for families and small businesses right around the country.
Now higher mortgage repayments would be a steep price for Australians to pay for this treasurer and this government’s incompetence. They promised that they would fix the budget and they promised jobs and growth. Instead we got bigger deficits, we got a shrinking economy and we have got those full-time jobs disappearing. They have delivered precisely the opposite of what they promised that would deliver.
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Chris Bowen:
This update confirms the fact that, since the Liberals and Nationals came to office, debt is around $100bn higher, that’s around $4,500 for every Australian.
It confirms the fact that this government has no plan, no proper plan, well thought out plan, importantly, which can pass the parliament to see our budget surplus protected.
We warned during the election campaign that the government’s forecasts were overly optimistic.
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Labor: surplus is wafer thin and could be fixed by dumping the corporate tax cuts
Labor’s Chris Bowen is up now with the finance shadow, Jim Chalmers.
We welcome the fact that the surplus will be projected to continue for 20/21, however, it is a wafer-thin surplus, subject to any changes in the budget parameters that are, that would be further announced. It is a wafer-thin surplus which could be blown over by the slightest breeze. Now, the fact of the matter is that there could be a better way. The surplus for 20/21 could be around $4bn better if the government dropped their big business tax cuts and adopted Labor’s sensible plans for negative gearing and capital gains tax reform.
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#MYEFO statement from Moodys on Australia's AAA rating #auspol pic.twitter.com/d2NDNcjGXH
— Primrose Riordan (@primroseriordan) December 19, 2016
Moody's expects budget deficits to be bigger than government projections
Moody’s has issued a statement that questions the government’s Myefo statement. I will give the full statement in a minute.
Here is the key sentences:
Although progress has been made since the budget in implementing fiscal consolidation measures, this has been achieved mainly through appropriations and regulations. Legislating fiscal consolidation measures remains challenging.
As a result, we expect that the budget deficits will be somewhat wider for longer than currently projected. Gross general government debt will rise in the next couple of years to rise to around 42% of GDP in our projections. This is broadly in line with the median level of AAA-rated sovereigns.
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BREAKING: Moody's says expects budget deficits to be bigger than revealed in #MYEFO...
— Shane Wright (@swrightwestoz) December 19, 2016
Abbott Hockey Asset Recycling Fund dumped
The end of the Arf.
This was the fund that would have provided incentive payments to state and territory governments that sell assets and use the proceeds to build “nation-building infrastructure”.
Q: Can I ask about the Assets Recycling Fund? It was a rather miserable end for Joe Hockey’s centrepiece for 2014. What leverage are you going to use on States to privatise and the like?
Just on the second question, the Asset Recycling initiative was a roaring success but what has turned out to be the case is that because the Senate wasn’t prepared to legislate the establishment of the Asset Recycling Fund, given we were able to fulfil our commitment without setting up a specific fund. I would not agree with your characterisation there.
Elsewhere, Tony Abbott has yet to comment. He is on a peace and love trip with Bill Shorten.
Peace in the Middle East. @billshortenmp @TonyAbbottMHR @TimSmithMP Australia Israel UK Leadership Dialogue #auspol pic.twitter.com/prw3GtZRqw
— Richard Marles (@RichardMarlesMP) December 18, 2016
Tony Abbott nanny childcare program dumped
Tony Abbott’s so-called nannies pilot – the interim home-based carer subsidy program – has been dumped.
The numbers in the pilot will be slashed from 3000 to 500 – a cut that will receive a saving of $170.4m over two years.
The government says there has been little take up of the pilot program, which aimed to subsidise nanny childcare for 10,000 kids. So while existing participants will be funded until it closes in June 2018, no new nannies will be funded.
It was heralded as the first big thing in the second Abbott childcare package of 2015, which followed the first big rolled gold signature childcare package which did not survive the partyroom.
Scott Morrison announced the measure initially as social services minister in 2015.
Key workers such as nurses, police officers, ambulance officers and firefighters, as well as other shift workers, are too often unable to access childcare and take advantage of government support because of the nature and hours of their work.
The same is often true for families in rural and regional areas and those who have children with special needs, for whom mainstream childcare services are often inaccessible, lack the necessary flexibility or do not cater for their specific needs.
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Let’s move on to the details of some key changes, some of which we knew about.
The green army is cactus.
The government will cut the program, worth $224.7m over four years.
Existing contracts will be funded.
The majority of savings will be directed towards other programs with a bit for budget repair.
- Landcare gets $100m.
- Great Barrier Marine Park Authority gets $34m.
- New facilities at the Macquarie Island Research Station get $27.2m.
- As foreshadowed before the election, the Antarctic Corporate Partnership is dumped.
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OK the press conference has wrapped with the treasurer’s well-known homage to the Australian singer Tina Arena.
We have measures of parliament which need the approval of partners to ensure future generations aren’t saddled with bad debt.
Bad debt paying for welfare payments of today through higher taxes on people in the future. That’s not the way we want to go.
So we are delivering on those commitments. We will continue to do that in the new year as we work towards next year’s budget.
On that note, can I wish you all a very merry Christmas. Tina Arena I don’t think has a Christmas CD out this year, which is a great disappointment to me.
I will have to go back to the old ones. I hope your families have a safe and Merry Christmas.
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Govt confirms the 15-16 MYEFO plan to change pathology bulk-bill arrangements has been deferred for "further consultation" - #MYEFO
— Shane Wright (@swrightwestoz) December 19, 2016
Our neighbour Shane Wright of the West Australian:
The govt still has $205 million in savings for 16-17 to announce #MYEFO
— Shane Wright (@swrightwestoz) December 19, 2016
James Massola of Fairfax asks why Australians should believe Morrison on a return to surplus in 2020-21 given the past three treasurers have promised a return to surplus.
Morrison says this:
First of all, it is a projection of 2021. I’d note that.
Second of all, what are the things government controls? What a government controls is what it spends and taxes in decisions of its own making.
As the finance minister and I have made clear today, we have, in this statement, as in the other statements we have handed down together, increased the bottom line position for the government when it comes to net policy decisions. You see, the demonstration of the government’s resolve to take the budget forward.
It is a projection, people. Don’t bet your house on it.
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Scott Morrison is asked about a specific cut and I will get to more of individual measures in a minute as we go through the details once the Morrison-Cormann presser is over.
Q: Can you explain the $330m cut in wages subsidies for workers over 25 and the $120m skills fund that’s been axed? How does that accord with your job creation policies?
This change announced in Myefo effectively caps the amount of funding available in a wage subsidy pool for anyone 25 and older.
Morrison makes these points:
- The fund has been under-utilised to date
- Funding is being redirected within the education and training portfolio to programs that include the VET student loan programs
- Industries which have a funding agreement in place will not be affected
- It is funded until 2018-19 with $41.8m over the next three years
- Applications for the fund will remain open until 31 December 2016 to allow any businesses that had previously inquired about funding to submit an application
- It would allow business and individuals to train through a range of skills programs including the Australian apprenticeships incentives program, trade support loans and the VET student loans program
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How can we be confident of returning to surplus in 2020-21 when the figures are so volatile? Morrison returns to Wayne Swan.
Wayne Swan was the one who stood up in the parliament and said ‘the four years of surpluses we deliver tonight’. You haven’t heard that from me, you haven’t heard it from the prime minister or the finance minister. It was the Labor party who overegged on these things. What we do is, I think very prudently, and I think, as you see in this document, very transparently, is set it all out.
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Scott Morrison is asked first up about the possible downgrade of Australia’s triple-A rating. He refuses to whinge about a possible downgrading but then says Australia is regularly getting assessed through the bond market.
We are getting three to four times coverage on our debt and if you look at the movement in yields of Australian Treasury bonds versus US Treasury bonds, you see a bit of a narrowing of the gap, which means we are getting better prices.
How long-lived that is, we will see, but the point is that when those who actually make the purchases on Australia’s debt – hedge funds, sovereign wealth funds, the central banks of other countries and others – when they are making their own independent assessments of Australia, they are buying. They’re buying.
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Scott Morrison to parliament: get with the program
The treasurer ended his statement with an appeal to be positive, Australia.
Just in wrapping up, this statement supports a growth-friendly economic set of policies and, notwithstanding the reasons for optimism that exist, it reminds us of the need to clear any fog of unreality about the scale of the fiscal and economic challenges we face as a nation and the need for partners in the parliament to support government efforts to restore the budget to balance.
When we look at particularly the issues of Australia’s international standing on debt and our performance vis-a-vis other countries, with growth rates at 2%, at the top end of the scale for advanced and AAA-rated economies and an improving global outlook as the statement sets out and continuing evidence that the Australian economy is successfully transitioning from the mining investment boom, there is reason to be positive and optimistic.
It is not surprising that, despite the deficit and debt legacy which was left to us by the previous government, in the advances we have been able to make, we continue to stand strongly in international debt markets and we continue to perform well in meeting our external financing commitments. This is evidenced by the success of our bond offering and the performance of our Treasury bonds.
Australia continues to be well supported and rated by international debt markets re-enforcing our global reputation and standing as a secure place to invest. The statement provides a responsible, conservative and transparent update of the Australian government’s fiscal position and optimistic but very realistic outlook on our future economic performance.
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The Kouk is talking a 60-year high.
Net govt debt forecast to hit a 60 year of 19.0% of GDP in 2018-19
— Stephen Koukoulas (@TheKouk) December 19, 2016
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Govt spending:
— Stephen Koukoulas (@TheKouk) December 19, 2016
2012-13 $367.2 billion
2016-17 $441.1 billion #MYEFO
The political bits, via the treasurer:
Importantly, the net impact of policy decisions made by the government, including fully funding all election commitments, has been to improve the budget by $2.5bn over the forward estimates. With net improvements of more than $2bn in payment savings and just under net $500m in increased revenues, in each and every year of the budget and the forward estimates, net policy decisions of the government have improved the budget bottom line including net payment savings in each and every year.
Once again, the government has demonstrated we do not spend more than we save. And that the predominant mechanism for restoring the budget to balance is by getting expenditure under control. By contrast, the net effective of Labor’s policy decisions at the last election was to increase the deficit by $16.5bn.
If Labor was standing at the podium ...
This means that, under Labor, this statement would have been at least $16.5bn worse off today and as much as $19bn worse off when you take into account the improvements the government has made of some $2.5bn on our net policy decisions.
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Scott Morrison is speaking now.
In MYEFO, once again, the budget is projected to return to balance in 2021. The underlying cash deficit is now expected to narrow from $36.5bn, or around 2.1% of GDP in2016-17, and that is down on the $37.1bn in the budget and the pre-election economic and fiscal outlook to $10bn or half a percent of GDP in 2019-20.
The average annual pace of fiscal consolidation is 0.5% of GDP over the forward estimates period. That is consistent with previously reported trajectories. Since PEFO, the total effective parameter and other variations has been to negatively impact the budget by $12.8bn.
This includes a $30.5bn downward revision to revenue, driven principally by weaker wage and profits growth and weaker tax collections offset by reduced payment estimates.
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Good afternoon blogans and welcome to Mad Myefo Monday, where too much pre-Christmas excitement is never enough.
The midyear economic and fiscal outlook statement (Myefo) has been delivered.
As expected, the underlying cash deficit this year has come in at $36.5bn – compared with $37.1bn reported in the budget and the pre-election economic and fiscal outlook (Pefo).
But, over the forwards, the deficit has worsened $84bn in the budget to $94.9bn. The government expects debt to peak lower at 19% of GDP but a year later, in 2018-19.
In a statement the treasurer, Scott Morrison, and the finance minister, Mathias Cormann, announced revenue dropping $30.5bn – “driven principally by weaker wage and profits growth and weaker [tax] collections”.
But the statement has wage price index projections up from 2.1 in 2015-16 to 3.25 in 2018-19 and 3.5% in 2019-20.
Pretty confident really under the circumstances.
The Myefo still contains the so-called zombie measures from the Abbott-Hockey 2014-15 budget, worth $13.2bn.
I will keep dribbling out more figures and initiatives as we go.
But, as we sat down, a statement was placed in front of us regarding the Australian Securities and Investments Commission (Asic) registry.
It said the after a “thorough evaluation” of the final private-sector bids to essentially privatise the Asic registry functions, the government would not be proceeding with the deal.
The reason? That the bids, delivered through a competitive tender process, did not deliver a “net financial benefit” for the commonwealth.
The government said, thanks very much to everyone who participated. And the learnings would feed into the “future approaches” to registry functions.
Stay with us for all the news live.
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