Recovery cutting budget deficit

Amid volatility on the stockmarket, encroaching inflation and an expected lift in interest rates later in the year, Australians are well placed to meet the economic challenges ahead. The strength of the economy is clear in improvements to the budget bottom line, which was battered by the pandemic stimulus. But for good reason global ratings agency S&P reaffirmed Australia’s AAA credit ­rating on Thursday, noting an “improving” fiscal outlook. Australia is one of only nine countries to retain the AAA rating from the three major credit agencies. S&P noted that the federal deficit was “narrowing substantially as stimulus measures finish”. The bottom line also was buoyed by the post-lockdown economic recovery that had pushed unemployment down to 4.2 per cent.

Monthly financial statements show tax receipts across the first half of the ­financial year were $3.4bn higher than anticipated in last month’s mid-year budget update. The first-half budget outcome was $24.5bn better than predicted in May last year, with the deficit in the same period falling from $61.8bn to $37.3bn.

The latest economic data suggests the Omicron variant has not stalled Australia’s recovery. But in a prudent warning to the government ahead of the budget and to both major political parties ahead of the federal election campaign, S&P said a large increase in spending would weaken fiscal accounts. Nor did it expect further lockdowns to derail fiscal recovery by weighing on revenue growth or resulting in fiscal stimulus.

Josh Frydenberg’s strategy in his two pandemic budgets to create conditions for a business-led recovery also has been vindicated by the busiest surge in apprenticeships since 1998. New jobs data reveals that more than 355,000 trainees and apprentices were working in September, a third increase on the number a year earlier. Of those, 218,000 were trade apprentices, whose skills will be in demand to ease labour shortages in the productive economy in the years ahead. While incoming travel for skilled migrants remains restricted, business has made the most of government support to offer young people the chance to train as brickies, chippies, electricians, cyber professionals and early childhood workers.

On Friday, analysts said post-Omicron consumer spending was on the way back, positioning the economy to navigate the first interest rate hike in more than a decade in the second half of the year. High savings and a tight jobs market augur well for prosperity.