I posted up a preview earlier: Australia budget day - preview
I'm posting up more previews now for those who might want more detail.
Earlier, the preview from NAB: Australian budget preview 2
This now, via Westpac:
- Budget 2017 is to be announced by the Federal Treasurer on Tuesday night, May 9. We expect that the existing profile for the underlying cash balance, with a return to surplus in 2020/21, will be largely confirmed.
- Westpac Economics expects the underlying deficit for 2017/18 to be announced as $27.7bn, an upgrade of $1bn from the Government's December forecast in the Mid-Year Economic and Fiscal Outlook (MYEFO). Across the four years to 2020/21 the improvement is $3bn.
- The budget deficit narrows only gradually across the four years, by around 0.5% of GDP each year, and edges into surplus in 2020/21 (0.2% of GDP), after 12 consecutive years of deficit.
- These estimates are likely to be based on the commodity price forecasts used in the December MYEFO. Notably, the iron ore price is expected to be US$55/t fob, reaching that point in December 2017, one quarter later than assumed in MYEFO. Currently, the fob price is around $63/t.
- However, based on our own more pessimistic forecast profile for commodity prices we expect that the budget will still print a deficit in 2020/21 of around $5 billion.
- The economic outlook is slightly more positive than MYEFO based on an improved global backdrop although the good news on higher commodity prices has already been factored into MYEFO.
- On the Government's forecasts for real GDP growth we expect an upgrade to 2017/18, to 3.0% from 2.75%, but a downgrade to 2018/19, to 2.75% from 3.0%, as home building activity turns down. We concur with that expected slowdown.
- That yields a profile for real GDP growth from 2017/18 of: 3.0%, 2.75%, 3.0% and 3.0%.
- The profile for nominal GDP growth from 2017/18 is: 4.25% (+0.5%), 4.0% (-0.25%), 4.5% and 4.5%. By comparison our nominal GDP profile is: 3.8%, 2.8%, 4.25% and 4.25%.
- On policy measures, we expect a net neutral impact on the budget. The 'zombie' savings measures - those stuck in the Senate since 2014 and estimated at $12.4 billion over the four years are to be removed. There will be some modest new spending, such as on schools.
- We expect savings measures, a mixture of expenditure (including universities and welfare) and revenue (possibly including extending the Medicare levy surcharge to all high income earners), to fully offset new spending and the removal of the 'zombie' measures.
- Key themes will be: delivering on election promises, including cutting the company tax rate; a growth focus, notably increased spending on infrastructure; energy affordability and reliability; and social housing and housing affordability.
- We are most attracted to the likely infrastructure initiatives including a second airport for Sydney ($5-6 billion) and the Brisbane to Melbourne inland freight rail link ($10 billion).
- The government is likely to finance these infrastructure projects through capitalising special purpose companies rather than grants. Under this approach the budget balance will only be impacted by the interest costs from the resulting debt.
- These projects, which have been fully assessed by Infrastructure Australia as part of its $60 billion, 15 year Infrastructure Plan, are an extremely welcome development and, hopefully, will be complemented by other such announcements on Budget Night.
- The assessment process involving Infrastructure Australia should be contrasted with the NBN which is now requiring funding of $49bn including $29.5bn of equity and $19.5bn of debt and was approved without the appropriate assessment of an independent body such as Infrastructure Australia.
- Our estimate of the timing of the drawdowns of the debt associated with these projects has net debt peaking at 19.2% of GDP in 2018/19. Of course, if more projects are announced, as we hope, the peak ratio and its timing will change.
