The government’s announcement comes as part of it’s mid-year economic and fiscal outlook (MYEFO) report, which showed that the Australian economy is expected to have a surplus of $5 billion in 2019-20 or 0.3 per cent of GDP.
Over the next four years, the surplus is expected to be $23.5 billion.
The mid-year budget update revealed growth forecast for wages, which has been slashed from 3.25 per cent to 2.5 per cent.
The Reserve Bank of Australia previously noted that lower wage growth will become the new norm in the Australian economy.
Treasurer Josh Frydenberg said the downward revisions is mainly due to lowering of taxes to individuals, company taxes and the GST.
Net debt is projected to be $392.3 billion in 2019-20 (19.5 per cent of GDP) and to improve across the forward estimates and medium term. Gross debt as a share of GDP is also expected to decline over the forward estimates and medium term.
Finance Minister Mathias Cormann put a positive spin on today’s announcement, highlighting Australia’s position compared with relative G7 nations.
“The outlook for the Australian economy is positive. GDP growth in the first three quarters of 2019 has been stronger than it was in the second half of 2018, with MYEFO confirming that the economy is forecast to grow by 2 1/4 per cent in 2019-20. Growth is forecast to improve to 2 3/4 per cent in 2020-21, which is faster than any G7 nation and well above the OECD average of 1.6 per cent.”
The minister also highlighted the strength of the labour market, noting that welfare dependency dropped to its lowest level in 30 years, “which is helping to keep real growth in spending to the lowest of any government in 50 years”.
The report noted that global economic momentum has weakened due to the US-China trade war, Brexit and factors in South America and East Asia.
“Global growth is expected to be 3 per cent in 2019 – the weakest growth since the global financial crisis – and 3 1/4 per cent in 2020. Major trading partner growth is forecast to be 3 1/2 per cent in 2019 and 3 3/4 per cent in 2020,” the reported noted.
With a weakening global economy, the assumption for commodity prices has fallen, which is having an impact on the Australian economy.
To help the Australian economy, Mr Frydenberg has pledged to spend more on infrastructure, communities and quality and safety in aged care.
“The total transport infrastructure investment will be over $100 billion over 10 years, including an additional $4.2 billion over the next four years.”
“The government is also redirecting $200 million from the Building Better Regions Fund into drought-affected communities and funding an extra $138.9 million in Roads to Recovery in 2020 for 128 local government areas impacted by drought.”
“The government will provide $624 million to respond to the interim report of the royal commission and to build on recent improvements to standards, oversight, funding and transparency in the care of older Australians,” Mr Fydenberg concluded.
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