The outcome for the 2015-16 financial year has been unveiled by the government, and as expected it’s a bad result — but marginally better than forecast back in April.
In the 2015-16 budget — Joe Hockey’s second and last — the Abbott government, which in opposition had promised to immediately eliminate the budget deficit, predicted a deficit of $35.1 billion for the year ending in June. In last year’s Mid Year Economic and Fiscal Outlook, new Treasurer Scott Morrison forecast the deficit would blow out to $37.4 billion. In this year’s budget, he revised the deficit forecast for 2015-16 again — it would now be $39.9 billion.
Well, at least the blowouts have stopped: the outcome is a deficit of $39.6 billion. The fractional improvement is due to lower-than-expected spending — around $1.6 billion less than expected in May — offset by that more familiar outcome of lower-than-expected revenue, which was $1.1 billion off (there was also a small improvement in Future Fund earnings). The $386.9 billion revenue outcome compares to the original 2015 budget prediction of $398 billion.
In fact, it’s clear that, despite Joe Hockey and Mathias Cormann’s insistence that the days of revenue write-downs had ended with Labor, this government is continuing to struggle, like its predecessor did, with overly optimistic Treasury revenue forecasts. In last year’s budget, individual tax was forecast at $194.3 billion and company tax at $69.8 billion.
In the intervening 12 months, individual tax was revised down to $192.6 billion and actually came in at $190 billion. That’s a hefty $4.3 billion write-down, but not that huge by itself. Company tax, however, was written down nearly $2 billion from the 2015-16 budget in last year’s MYEFO, then down to $65 billion in this year’s budget and came out at $63.5 billion — a $6 billion-plus drop to go with the $4 billion-plus individual tax drop from budget forecast to budget outcome.
Fortunately, the government was able to curb its spending more than expected, which prevented the deficit deterioration from being even worse — but for how long can it keep its spending in check given the current political environment?
This year’s budget deficit is forecast to be $37.1 billion, with a forecast $20 billion lift in revenue from 2015-16. We’ll find out in a few weeks at MYEFO for 2016-17 whether Treasury is getting any better with its revenue forecasts, but in the May budget it cut its revenue forecast by $6 billion compared to last year’s MYEFO … perhaps practice will eventually make perfect.