The key statement that sums up today’s economic forecast revisions is on page 14.
Since the 2010-11 Budget, parameter and other variations have led to taxation receipt estimates being revised up by around $310 million in 2010-11 and around $7.8 billion over the four years to 2013-14. A stronger outlook for commodity prices is reflected in higher than otherwise taxes on resource rents and company profits. This is offset in part by downward revisions in consumption taxes associated with a weaker consumption outlook.
In short, the mining boom is taking off again and propelling government receipts onwards and upwards. The only thing the Government has to do to return quickly to surplus is keep a lid on spending, the one thing this Government has been good at outside its stimulus packages in 2008-09.
However, while foreigners can’t get enough of our dirt and will drive our terms of trade up 17% compared to 14.25% forecast two months ago, the domestic economy will be slightly weaker, which might be good news for interest rates. Private consumption has been revised down by 0.5% to 3% growth this year, and cut back next year as well. Housing investment is forecast to grow much less this year than the forecast 7.5%, at only 5.5% (on top of downgrading of the 2009-10 outcome), but some slack will be picked up in 2011-12. Total business investment is expected to grow more strongly, however, on the back of mining investment.
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Private final demand is also expected to be significantly softer this year, revised from 4.5% down to 4% growth, with a 0.25% downward revision in 2011-12. Public demand, always forecast to go backwards next year as the final stimulus components are removed, is now forecast to fall substantially, -1.75%, compared to the Budget forecast of -0.5%.
Accordingly, economic growth is actually forecast to be slightly lower in 2010-11, down from 3.5% to 3.25%, and there’s a similar 0.25% downward revision for 2011-12. This means the expected fall in forecast unemployment hasn’t materialised, with unemployment remaining at 5% this year and 4.75% next year. As expected, inflation is expected to go higher, up this year and next from 2.5% to 2.75%. But wage pressures aren’t expected to grow more than forecast back in May.
The forecasts also show that the Government’s cave-in to the miners on the RSPT did it out of $7.5b in revenue based on the commodity prices used in the original estimates for the RSPT. It’s the upward revision of commodity prices that meant the MRRT only generated $1.5b less over the Forward Estimates. Based on new commodity prices, the cave-in is likely to have cost the Government in the vicinity of $10b over Forward Estimates alone.
The Gillard Prime Ministership is already proving a very expensive one.