Government's 2005 Financial Year Outlook: Mixed Signals for Economy and Budget

The Australian federal government has released its outlook for the 2005 financial year, with Treasury increasing its Budget surplus estimate for 2004/05 by almost $1 billion to $6.2 billion. Economic growth forecasts, however, were revised down from 3.5% to 3.0%, with most economists attributing the slower growth to Australia's weak export performance. The government's reliance on revenue from company profits and strong employment outcomes is evident, with National Australia Bank senior treasury economist Spiros Papadopoulos stating that the rise in revenue would more than offset the government's election promises and other measures announced since the Budget.

Key Takeaways:

• The Treasury increased its Budget surplus estimate for 2004/05 by almost $1 billion to $6.2 billion, citing an increase in anticipated company profits and stronger than expected employment outcomes.
• Economic growth forecasts were revised down from 3.5% to 3.0%, primarily due to Australia's weak export performance, which was attributed by Commonwealth Bank chief economist Michael Blythe as being driven by incomes growing faster than production.
• The government's forecast for export growth was halved from eight to four per cent, indicating a net export detraction of an extra percentage point from the government's pre-election growth forecast.
• UBS chief economist Scott Haslem warned that the budget numbers "may be as good as it gets," given slower domestic economic growth expectations and a more challenging time for corporate profitability.
• Commsec's chief equities economist Craig James noted that the Treasury has consistently underestimated the size of its budget surplus in recent years, with the actual budget surplus result in 2003-2004 being almost four times the original estimate made at the time of the May 2003 Budget.

Statistics:

• The Treasury's revised Budget surplus estimate for 2005/06 is $4.5 billion, compared to $5.1 billion in the previous year.
• The government's economic growth forecast for 2005 is 3.0%, down from 3.5% in the pre-election estimate.
• Australia's export growth forecast was revised down from eight to four per cent, indicating a net export detraction of an extra percentage point from the government's pre-election growth forecast.
• The actual budget surplus result in 2003-2004 was almost four times the original estimate made at the time of the May 2003 Budget.

Sources:

• "Asia Pulse", Sydney, Dec 21, 2004.
• National Australia Bank (NAB)
• Commonwealth Bank (CBA)
• UBS
• Commsec