Federal Budget deficit hits 7-month low
Budget improving. The underlying budget deficit for 2012 (the twelve months to December) stood at $38,550 million – the lowest rolling annual result in seven months. The December 2012 deficit of $4,290 million was the smallest December result in five years.
Revenue growth has slowed. Revenue in the 2012 year was up 8.2 per cent on a year ago – the slowest rolling annual growth rate in 17 months. Expenses were up 6.0 per cent. The Government has projected 10.5 per cent growth of revenues in 2012/13 with expenses to fall by 0.7 per cent.
Faster growth of GST receipts. Receipts from the Goods and Services Tax stood at a record $49,781 million in the twelve months to December, up 1.5 per cent on a year earlier. But over the past five months, GST collections have quickened, growing at a 6.6 per cent annual rate.
Carbon tax: The Government has estimated carbon tax revenues of $3,845 million in the six months to December.
What does it all mean?
The good news is that the budget deficit is the smallest in seven months. The bad news is that progress in reducing the imbalance is slow. Not only are revenues growing at the slowest pace in 17 months but expenses aren’t slowing at a commensurate pace.
At this point (six months to December), the Government’s bean counters had expected underlying cash receipts to be around $4 billion higher, although it is encouraging that cash payments are actually around $1.4 billion lower than the “profile” position.
There are signs that the economy is awakening from its slumber. Recent profit results have proven to be far better than expected, consumer confidence has spiked higher, while share prices and home prices are both rising. But the recovery in revenues will not arrive in time to push the budget into surplus over the current financial year.
The modest improvement in the budget position is another reason for the Reserve Bank to stay on the interest rate sidelines. In other words fiscal consolidation is happening only slowly, reducing the need for the Reserve Bank to counteract the effects by trimming rate settings.
What do the figures show?
The underlying budget deficit for the twelve months to December stood at $38.55 billion, the lowest annual deficit in seven months and a $5.2 billion improvement on the full-year 2011/12 result.
In December 2012 the monthly deficit was $4,290 million – the smallest deficit for a December month in five years.
Smoothed revenues (year to December) were up 8.2 per cent on a year ago – the slowest annual growth rate in 17 months. Expenses grew by 6.0 per cent over the same period. The Government has projected 10.5 per cent growth of revenues in 2012/13 with expenses to fall by 0.7 per cent. In the twelve months to December, budget revenue stood at $350.3 billion, while expenses stood at $382.7 billion.
For the year to December the fiscal balance stood at a deficit of $36.9 billion and the headline budget deficit was $40.1 billion.
The Government noted: “The underlying cash balance for the year to 31 December 2012 was a deficit of $22,252 million, compared to the Mid-Year Economic and Fiscal Outlook (MYEFO) profiling YTD of the underlying cash balance deficit of $19,816 million. The difference of $2,437 million primarily relates to lower tax receipts, lower other receipts and higher personal benefit payments, partially offset by lower payments for goods and services.”
Receipts from the Goods and Services Tax stood at a record $49.78 billion in the twelve months to December, up 1.5 per cent on a year ago and broadly in line with the 1.6 per cent average growth rate recorded over 2012. Over the past five months, there are indications that economy-wide spending has accelerated. Annual GST revenues have lifted 2.8 per cent or 6.6 per cent annualised.
The Government has no concrete figures on collections from the carbon tax. The government expects revenue from the carbon tax to be $7,690 million in 2012/13 and the estimate for the first six months is actually half the full-year total.
What is the importance of the economic data?
The Department of Finance and Deregulation release the Government Financial Statement (Niemeyer Statement) almost every month. The statement allows investors to track the current budget position and provides insights into the effectiveness of fiscal policy.
What are the implications for interest rates and investors?
The budget deficit is being reduced, but only slowly. While the slow progress means that the path to budget balance or budget surplus will take some time, there is less need for the Reserve Bank to offset the fiscal tightening with an easing of monetary policy.
GST revenues have strengthened markedly over the past five months, and future trends could be instructive about the path of monetary policy.
Published: Monday, February 18, 2013