Australia’s MYEFO sees budget deficit at USD36.5 bln on softer labor market, lower GDP expectations

According to the Australian mid-year Economic and Fiscal Outlook (MYEFO), the 2016-17 budget deficit is now expected to be USD36.5 billion rather than the USD37.1 billion deficit expected in the May 2016 Budget. However, budget deficits beyond 2016-17 are expected to slip further into the red.

In today’s MYEFO, the Treasury lowered its forecasts for real GDP growth and employment growth in 2016-17 and 2017-18, compared to its earlier estimates.  Softer jobs and wage growth has led to a USD2.3 billion downward revision to income tax receipts and company tax receipts were revised down by USD1.2 billion. In total, receipts for 2016-17 are set to be USD3.9 billion, lower than expected.

On the expenditure side, cash payments are expected to be USD3.9 billion lower in 2016-17 assisted by spending cuts since the election of USD0.9 billion. The marginal improvement in the 2016-17 budget deficit appears due to adjustments to earnings from the Future Fund, the report added.

Further, ratings agency Moody’s said that Australia’s AAA rating is consistent with its budget deficit, although a downgrade remains in place for now. Overseas developments are likely playing a bigger role for financial markets.

"If a balanced Budget is to be achieved it will most likely require a reorganisation of taxation and some spending cuts. So far these have been difficult to achieve. The government appears optimistic. We remain a touch skeptical," St George Economics commented in its latest research report.

Meanwhile, AUD/USD traded at 0.72, down 0.11 percent, while at 6:00GMT, the FxWirePro's Hourly AUD Strength Index remained highly bearish at -117.77 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex