Government budget surplus promise thwarted

A SLOWDOWN in the global economy is set to thwart the government's plan to return the federal budget to surplus as the tax take from companies and workers wanes, a leading ratings agency has warned.

Fitch Ratings says the government will struggle to meet its plan to deliver a budget surplus by the 2019-20 financial year as a darkening global economic outlook bites locally.

As well as leading to less tax revenue, the economic slowdown may also force the federal government to increase spending in order to prop up the economy, the rating agency said.

"The Australian government will struggle to register a federal fiscal surplus by the end of fiscal year 2020," Fitch said on Wednesday.

Prime Minister Scott Morrison will struggle to reach his promise of a budget surplus in the next financial year.
Prime Minister Scott Morrison will struggle to reach his promise of a budget surplus in the next financial year.

"We believe that a moderation in economic growth in FY2019-20 will likely result in weaker revenue collection growth due to slower company tax and individual tax revenue growth.

"Meanwhile, we expect the government to seek to support the economy through higher spending amid growing signs of a global economic slowdown, and this will likely delay its achievement of a fiscal surplus."

The warning was delivered as The World Bank cut its outlook for global growth as the trade dispute between the US and China - the world's two biggest economies - takes its toll.

The World Bank expects global economic growth to come in at 2.9 per cent in 2019 - down from its earlier forecast of 3 per cent.

"Risks are rising," World Bank economist Ayhan Kose said.

"The global economy is going through a difficult period. Skies are darkening and we see the global economy slowing."

Fitch expects the budget deficit to amount to 0.3 per cent of gross domestic product (GDP) for the current 2018-19 financial year and 0.1 per cent in 2019-20.

The government's most recent budget update delivered last month forecast a deficit of 0.3 per cent of GDP in 2018-19 financial year, amounting to $5.2 billion.

But it expects to deliver a surplus of $4.1 billion - 0.2 per cent of GDP - in 2019-20.

Although Fitch believes these projections will prove too optimistic, its latest estimates are healthier than those it provided last year.

It previously forecast the deficit to come in at 0.5 per cent of GDP in 2018-19 and 0.4 per cent in 2019-20.

Its upward revisions follow better than expected tax revenue throughout 2018 as the nation was boosted by a surge in company tax collections and strong commodity prices.

But Fitch says the government's expectations around tax receipts are too bullish given the nation's economic growth is set to slow from 3 per cent to 2.5 per cent and China is facing a number of headwinds.

"We believe that revenue collection is likely to underperform the government's revenue growth projection of 8.1 per cent in FY2018-19," Fitch said.

Commodity prices are set to come under pressure, taking a toll on the nation's mining sector, the ratings agency said.

"Weaker mining exports will therefore take a toll on mining company income tax collections, while gloomier economic growth prospects will slow hiring and wage growth, which will weigh on individual income tax collections," it said.


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