Budget a sign Australia got lucky again

Economist Chris Richardson says positive budget news is more to do with luck than government action.
Economist Chris Richardson says positive budget news is more to do with luck than government action.

Economist Chris Richardson says the welcome return to balance in Australia's budget position is more to do with luck than any "tricky decisions" taken by the federal government.

Treasurer Josh Frydenberg announced on Thursday the final budget outcome for 2018/19 was $690 million deficit, the best outcome in 11 years and smaller than the $4.2 billion deficit that had been predicted by the government in April.

A surplus is forecast for this financial year.

Mr Richardson, a partner at Deloitte Access Economics and self-proclaimed "biggest budget nerd" in Australia, said national income and the budget have benefited from stimulus measures taken in a slowing Chinese economy which have demanded coal and iron ore, Australia's biggest exports.

"The lucky country got lucky again," Mr Richardson told the Committee for Economic Development of Australia's State of the Nation conference in Canberra on Friday.

"It's back to balance, not because Canberra took tricky decisions and certainly not because Canberra did many reforms, but because we got lucky."

However, he said the slowdown in economic growth is a challenge.

He said interest rate cuts, tax cuts, a weak dollar and the housing market having reached a floor will be enough to keep the Australian economy "muddling through".

However, to reach the Reserve Bank's target of an unemployment rate of 4.5 per cent would mean the addition of 200,000 jobs, which would require a three percentage point cut in the cash rate when it is already at one per cent.

He said while the risks and uncertainties are on the rise, he is "not uncomfortable" where fiscal policy is at the moment.

The Reserve Bank, Labor and others have urged the government to do more in the face of the slowest growth in a decade.

However, Mr Richardson does want to see an increase in Newstart, saying while it would cost the budget $3 billion, assisting people back into work would see higher tax revenue.

The government is adamant that it is doing enough to keep the economy growing.

Finance Minister Mathias Cormann said the government delivered a pro-growth budget in April.

"Getting the budget back into surplus is critically important to ensure the funding for essential services are on a sustainable foundation and trajectory for the future," he told ABC television.

"It's also important to keep the Australian economy strong."

Furthermore, he said the government has protected the budget from volatility in the iron ore price by making conservative assumptions.

For 2018/19, the iron ore price was forecast to be $US55 per tonne, when it turned out to be $US72 per tonne.

"We are not at risk of spending money that ultimately we won't have," Senator Cormann told Sky News.

"That is why over the last three years, for three budgets in a row now, we've been able to outperform our budget forecasts."

Australian Associated Press