Housing slippery slope for economy

Falling house prices remain the big unknown danger for whoever wins government.

‘A more subdued outlook for household income … could also constrain household spending amid high levels of household debt.’

Treasury’s pre-election forecasts have revealed the sliding housing market remains the key risk for an incoming government after next month’s election, with the deficit for the current financial year blowing out by $100 million following Josh Frydenberg’s energy assistance payment backflip.

The post-budget decision to ­include Newstart recipients and pensioners in the government’s energy assistance handout saw the estimate for the underlying cash deficit for 2018-19 sink to a projected deficit of $4.2 billion.

Despite the small increase in the current deficit there were no major changes to the economic parameters underpinning the budget assumptions.

However, Treasury declared the government would be unable to deliver on its promise to cut ­income tax for low- and middle-income earners unless it hauled parliament back to sit before the end of the financial year, potentially putting at risk hundreds of dollars in savings for working Australians promised in this month’s federal budget.

With Treasury declaring there are no adverse material changes to the economic forecasts since Mr Frydenberg delivered the federal budget earlier this month, the projected surplus for next financial year remains unchanged at 7.1bn, the first surplus in 12 years.

The statement is prepared without interference from government and released under the Charter of Budget Honesty to ­inform policy costings for opposition and minor parties before the May election.

Bill Shorten, who yesterday again refused to release the cost of Labor’s climate policy, has commissioned the recosting of the opposition policies before releasing them ahead of the election.

Mr Frydenberg said Treasury’s forecasts statement showed Labor’s claims of a $40bn annual black hole in the government’s surplus plan was incorrect: “The (forecasts) also completely destroys any claims about supposed hidden spending cuts in our budget. Labor’s ridiculous claims have been exposed as just another Labor lie.

“There are no assumed undisclosed future spending cuts in the government’s medium-term projections. In contrast, when Labor was last in government, they did precisely what they are now falsely trying to accuse our government of.’’

But the housing market, and the degree to which falling property prices hurt economic activity, remain a key risk to the outlook.

“Uncertainty about the outlook for the housing market, in particular the extent to which housing prices fall further, poses a downside risk to the outlook for both dwelling investment and consumption,” Treasury said.

“A more subdued outlook for household income, or a further tightening in credit conditions, could also constrain household spending amid high levels of household debt.”

Treasury has confirmed parliament would need to sit before the end of the financial year if the government wishes to pass its proposed low- and middle-income tax cut plan. Labor does not support the proposal in its current form.

“The immediate relief to low- and middle-income earners … ­requires the relevant legislation to be passed before the increase to the low- and middle-income tax offset can be provided for the 2018-19 ­financial year. If not legislated prior to 1 July, 2019, the revenue cost of this measure would need to be reassessed,” Treasury said.

Opposition Treasury spokesman Chris Bowen said the statement was “contrary” to Scott Morrison’s claims the tax cuts could be delivered without legislation, a claim the Prime Minister made in Tasmania yesterday.