Budget surplus doing no harm, economist says

The government’s push for a surplus as “recession insurance” has been backed by Deloitte Access Economics.

Deloitte economist Chris Richardson dismissed arguments the budget was harming the economy. Picture: AAP

The government’s push for a surplus as “recession insurance” has been backed by Deloitte Access Economics, which has rejected calls from the Reserve Bank and others for greater spending on infrastructure to boost economic growth.

Deloitte economist Chris Richardson dismissed arguments the budget, on track for surplus this year for the first time since 2007, was harming the economy. “It’s not true. Our main economic levers — monetary policy and budget policy — are both supporting economic growth,” he said.

Mr Richardson expects stagnant wages and falling iron ore and coal prices to trim more than $8bn off the budget bottom line over four years when Josh Frydenberg delivers his mid-year budget update this month.

His budget monitor, released on Monday, calls time on upward revisions in government revenues that have seen the annual company tax haul rise from $62bn in 2016 to $95bn for the 12 months to October

“The Lucky Country’s most ­recent run of luck helped the budget, but that was never forever. Global developments — Chinese stimulus, disasters in Brazil — allowed a wedge to open that saw the budget improve at the same time as the economy weakened,” he said.

The price of iron ore, the economy’s biggest export, peaked at more than $US125 a tonne in early 2019, but has dropped back below $US90 since. The April budget forecasts assumed a price of $US55 by March next year.

“The weakened momentum in the economy has ­started to ice the grinding ­recovery that had been evident in wage gains in the last few years, as well as to see job gains … cool a ­little, too,” Mr Richardson added.

Weaker tax revenues, underpinned by weak wage growth, will overwhelm expected falls in spending to produce a $5.3bn surplus this financial year, on Deloitte’s estimates, compared with a forecast of $7.1bn by the government in April.

The Treasurer welcomed the support. “The report highlights the ­importance of delivering a budget surplus as healthier fiscal finances help protect prosperity,” he said.

Labor wants the government to bring forward planned tax cuts. “Soaring profits and high commodity prices have ensured the government can support the floundering economy without jeopardising the surplus,” Labor Treasury spokesman Jim Chalmers said.