Frydenberg dodges tax cut talk as economy surges ahead
Treasurer Josh Frydenberg is due to hand down an improved budget position on the back of a strengthening economy, when he releases the mid-year budget review this week.
But Frydenberg declined to add to speculation the coalition could offer Australians more tax cuts at the 2022/23 budget in March, ahead of the federal election due by May.
“I’m not going to add to that speculation for the budget,” he told Nine Network on Monday.
“But we’ve delivered for the Australian people … at every step of the way through this (COVID-19) crisis.”
Frydenberg could announce a major improvement to the budget bottom line of about $100 million when the mid-year review is released on Thursday, according to Deloitte Access Economics.
Just over a month ago, Deloitte Access economist Chris Richardson was forecasting a modest improvement of $45 billion over the four years to 2024/25.
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He is now predicting smaller budget deficits and an improvement of up to $103 billion over the four year period.
“That’s remarkable, given everything that’s gone wrong in the seven months since the budget was released, including Delta’s dawn, iron ore’s collapse, and multibillion-dollar rescue packages,” Richardson said.
He said since releasing his influential Budget Monitor in early November the economy had proved to be recovering much faster than Treasury had assumed, even with the Delta variant of COVID-19 having locked down half the population.
“Given that the best way to repair the budget is to repair the economy, that combination of resilience and recovery is helping the budget get its mojo back,” Richardson said.
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He said the cost of dealing with Delta was a very small fraction of the cost when the coronavirus first hit Australia’s shores, partly due to the federal government shifting some of the cost on to the states.
Families have also saved a quarter of a trillion dollars since COVID-19 first hit, which is helping to power the recovery now.
Australia’s high vaccination rate also means the recovery will be less fragile.
Deloitte is now expecting a deficit of $91.1 billion for the 2021/22 financial year compared with the $106.6 billion forecast by Treasury in the May budget.
It also predicts a deficit of $61.8 billion for 2022/23 rather than $99.3 billion.
“Provided Omicron doesn’t send many Australians back into lockdown for lengthy spells, then continuing rapid repair in the economy will generate rapid repair in the budget,” Deloitte Access Economics partner Stephen Smith said.
However, Richardson sounded a note of caution.
He said while the budget recovery was remarkable, Australian government spending was still in catch-up mode for aged care, disability and mental health.
“And at the same time the world has become more dangerous for Australia, so defence costs have some catch-up ahead too. That says the budget will be under pressure for some years to come,” he said.
“If you’re hearing costly promises from politicians in the months ahead, they should be treated with considerable caution.”
