Budget 'highlights fiscal strength'

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This was published 13 years ago

Budget 'highlights fiscal strength'

The commonwealth budget's return to surplus three years ahead of the previous schedule relies heavily on an ongoing mining boom to fill government tax receipts, economists say.

In the federal budget for 2010/11 released on Tuesday, Treasury forecasts the underlying cash balance to return to a $1 billion surplus in 2012/13, three years earlier than predicted a year ago.

For financial year 2010/11, the underlying cash deficit is expected to be $40.8 billion, or 2.9 per cent of gross domestic product (GDP), an improvement on the $57.6 billion (4.9 per cent of GDP) forecast in May 2009.

"Clearly the good thing about a strengthening economy is that it does a lot of work for you in fixing up your fiscal problems," Commonwealth Bank chief economist Michael Blythe said.

"The Australian economy has stood out as a beacon light in terms of the growth outcomes that are achieved and you can add fiscal outcomes as well.

"We think moving that surplus a couple of years and net debt peaking at 6.1 per cent of GDP is the sort of outcome that any other advanced country would happily trade with us."

Net government debt as a percentage of GDP is expected to peak at 6.1 per cent in 2011/12 before declining to zero per cent by 2018/19, according to budget papers.

RBC Capital Markets senior economist Su-Lin Ong said the improvement in the government's debt profile highlighted the fiscal strength of Australia.

"My only word of caution is, it's premised on strong terms of trade and a strong China and Asia and strong global recovery," Ms Ong said of the projected deficits and surpluses.

"It's also premised on the resources tax and measures that haven't been passed yet."

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As part of its Henry Tax review, the federal government proposed a 40 per cent tax on mining companies' super profits from 2012.

According to the budget papers, the super profits tax would pull in $3 billion in revenue in 2011/12 and $9 billion in 2013/14.

Economist with Financial Markets Research Group, Michael Turner, said the government was not banking on a smooth terms of trade over the next couple of years.

Demand from Asia for Australia's top two exports, iron ore and coal, is forecast to boost the nation's terms of trade by 14.5 per cent in 2010/11, according to Treasury figures.

The terms of trade, the ratio of export prices to import prices, is tipped to fall by 3.75 per cent during 2009/10.

"They're forecasting a rise (next) year, which is pretty much guaranteed.

"So the budget isn't entirely dependent on rising terms of trade."

Treasury have forecast real GDP to expand by 3.25 per cent in 2010/11 and 4.0 per cent in 2011/12 compared to 2.25 per cent for 2010/11 and 4.5 per cent in 2011/12 in forecasts made a year ago.

Mr Blythe said much had changed since the previous commonwealth budget was delivered in 2009.

"We were heading for a nasty recession and it did not happen," he said.

"The budget outcomes are better now we are getting a decent recovery and that is adding to that fiscal outcome as well.

"It is a sign of a powerful economy that is supercharged by a mining boom."

Westpac chief economist Bill Evans said the budget contained few surprises.

"We think the numbers are okay," Mr Evans told Sky News.

But Mr Evans said he would have liked to see more aggressive action by the government on tax on deposit interest.

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