The news just gets better

Andrew Pegler – 19 March 2010

The Aussie economic recovery is going so well that some are tipping Wayne may bring down a budget surplus next year instead of 2015 as previously forecast. Let’s call it a Swan dive.

To run a nation is expensive and roads, hospitals and memorial halls must be funded by taxes. If the tax collected equals what is spent we have a balanced budget. If more tax is collected than is needed we have a budget surplus. However, if expenses (i.e. stimulus packages, social welfare, Kim Beasley’s state dinners in Washington etc.) exceed tax collected then we have a budget deficit and the government must borrow money to make up the difference.

As we all know our stimulus package cost a bomb and we had to borrow a lot. The resulting budget deficit of around $55 billion was expected to take until 2015 to be paid off. But that was then and this is now, and according to ANZ chief economist Warren Hogan, “the deficit in this year’s budget could be as low as $30 billion and next year we could be something close to a balanced budget'”.

What this means for you is things like subsidies for superannuation, the baby bonus, the child care rebate scheme and the much-loved Medicare safety net probably won’t get the chop. Previously it looked like they would.

So why, what and how?

Australian export prices are climbing far faster than anyone expected. This means truckloads of tax paid into the government coffers. (BTW take last week’s Chinese government warning of a possible double-dip in the world economy with a grain of salt. This was more about China wanting to lock in lower resources prices for the next year or so.)

Next, the great leap forward in company profits have delivered the government heaps more tax revenue than it ever imagined and hence more to throw at that deficit demon. Basically the baton has been passed from our stimulus package to China’s stimulus package and back to Australian company profits. Nice symmetry eh?

Then there’s the 200,000 extra jobs unexpectedly created in the last six months. This means a lot less dole needs to be paid and a lot more income tax to be collected.

These factors all add up to mountains more money than the federal government expected. Some will go to continuing the welfare we all enjoy but a lot will go to offsetting the deficit. Hence we may be back in black sooner than we planned. See I told you it just gets better.

And in other news… The Economist online reports that economic recovery is coming to Africa faster than many had expected. Economies there grew by less than 2% in 2009 but are forecast to grow 4.5% this year, thanks in part to the Asian-led recovery. However, and here’s a bit of trivia, according to The Economist countries with rapidly increasing populations like Africa’s need 6% growth just to stand still.