The Pre-election Economic and Fiscal Outlook, released by Treasury and the Department of Finance this afternoon, reveals a steady-as-she-goes assessment of the budget and economy virtually unchanged from Treasurer Scott Morrison’s budget just over two weeks ago. PEFO is prepared independently by Treasury and Finance as required under the Charter of Budget Honesty legislated by the Howard government to ensure governments can’t hide bad budget news ahead of elections.
Possible revenue write-downs based on falling iron ore prices haven’t materialised, nor has there been any adjustment to the uptick in the wage price index in 2016-18 predicted in the budget, in light of recent very weak wages growth.
The only adjustment of any note is that the expected budget deficit for the current year, 2015-15, has been marginally adjusted upwards from $39.9 billion to $40 billion.
As with the 2013 PEFO, also issued just days after a government economic statement, there has been minimal adjustment to Treasury’s forecasts for the economy and Finance’s spending projections in the short period of time since the government offered its own forecasts, despite criticism of the optimistic nature of some of the budget forecasts.
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Treasury and Finance make two comments about the economy and the budget over the last fortnight.
“Since the 2016-17 Budget, the exchange rate has fallen somewhat and market participants have lowered their expectations of the official cash rate. Should a weaker exchange rate persist or should the official cash rate fall further, this would be expected to provide further support to real GDP growth, other things being equal.”
“Clearly, commodity prices are volatile and the outcomes could vary from the prices assumed in the 2016-17 Budget. The recent averages for some commodity prices are slightly higher than at Budget. By contrast, the latest spot prices are lower. Given short term volatility in prices, these differences are considered not material and so the technical assumptions have not been changed from Budget.”