Fydenberg's MYEFO Budget update shows big election war chest

Written by Michelle Grattan, Professorial Fellow, University of Canberra

The Morrison government has given itself a massive “war chest” for spending in the run-up to next year’s election, the budget update released on Thursday reveals.

The Mid-Year Economic and Fiscal Outlook ^[1] (MYEFO) shows $15.9 billion in expenditure “decisions taken but not yet announced and not for publication” over the forward estimates.

It is believed that roughly half of this refers to commercial-in-confidence and like decisions, such as vaccine purchases and support for airlines – leaving the rest for pre-election spending.

Last year’s MYEFO had only $1.5 billion for unannounced spending.

On the revenue side, the unannounced decisions amount to only $940 million over the forward estimates.

This is despite the government being expected to announce tax cuts for low and middle income earners before the election.

The MYEFO shows only a very small fall in the predicted deficit compared to the May budget. This is because of some spending blowouts, including for the National Disability Insurance Scheme, and the government’s decision to leave maximum room for election sweeteners.

The deficit for this financial year is expected to be $99.2 billion (4.5% of GDP), which is $7.4 billion better than the budget forecast.

Across the four-year forward estimates, there is an improvement of only $2.3 billion compared to the budget.

The update paints an optimistic picture, declaring “the Australian economy is rebounding strongly from the impact of the Delta outbreaks”.

It comes as the Omicron variant is hitting the country, with estimates of a quick spread in coming weeks and months.

But Treasurer Josh Frydenberg told a news conference the expectation was that Omicron would not derail the recovery.

Economic growth, which was 1.5% in 2020-21, is forecast to be 3.75% in this financial year and 3.5% in 2022-23.

The unemployment rate is forecast to fall to 4.5% by mid-2022, and 4.25% by mid-2023.

The unemployment figure for November, released on Thursday just ahead of MYEFO shows a dramatic fall from 5.2% in October to 4.6% in November.

Wage growth is expected to climb from 2.25% this financial year to 2.75% next financial year and to 3.25% by 2024-25.

Non-mining business investment, expected to grow 1.5% this financial year at budget time, is now expected to climb 8.5%.

The update says that the resilience of the economy has contributed to an upgrade in tax receipts of $95 billion over the forward estimates.

Both gross and net debt are projected to be lower in the forward estimates and the medium term than forecast in the budget.

Gross debt is expected to be 41.8% of GDP at June 30, 2022 and to stabilise at about 50% of GDP in the medium term.

Net debt is expected to be 30.6% of GDP in June next year and to peak at 37.4% in mid 2025, before improving over the medium term to reach 35.5% in June 2032.