The federal government will bank on economic growth improving revenue rather than deep spending cuts to rein in the budget deficit, economists and ratings agencies say.
The median forecast for the deficit is $28 billion in 2017/18 and a return to surplus by 2020/2021, according to an AAP survey of 10 economists.
Moody’s Investors Service associate managing director Marie Diron told AAP fiscal consolidation has been repeatedly postponed or been slower-than-expected in recent years due to constraints to cutting expenditure and raising revenue.
She says about 60 per cent of day-to-day spending growth is in areas like health, education and social security, which are hard to cut, and there’s few other areas the government can make cuts.
Ms Diron is looking for fresh proposals to balance the budget, but also assuming the timeframe for cutting the deficit will be extended past the turn of the decade.
“Typically when there are really significant measures they are announced in advance and we haven’t seen much of that,” Ms Diron said.
“So we do not expect any radical changes in either the direction of revenue or expenditure.”
National Australia Bank economists noted Treasurer Scott Morrison’s optimism about economic growth on the back of non-mining business investment and household consumption growth in a speech last week.
They said this indicated he would assume government revenues would gradually improve and avoid heavy cuts.
“Apart from the political challenge in placing the budget on a more sustainable footing, the government has also faced the economic challenge of not cutting too aggressively in the short-term and hence impacting the recovery of the economy,” the NAB economists said in a report.
The NAB economists said the government would instead continue to seek and forecast a gradual improvement in the budget situation, based on revenue improved, to maintain Australia’s triple-A credit rating.
“The latter seems likely, given the economic backdrop at this time,” they added.
The other development flagged by Mr Morrison is to frame money borrowed to fund income-generating infrastructure, such as roads and railways as “good debt”, while money borrowed to fund expenses such as health and social security as “bad debt”.
However, Ms Diron said ratings agencies already look at the operating balance and the composition of overall government debt in their assessments of Australia’s triple-A credit rating.
“What matters most is the government’s ability to honour its financial obligations,” she added.