Infrastructure Push To Aggravate Fiscal Deficits

BMI View: We believe Australia's fiscal deficit will continue to grow and hit a high of AUD51.5bn (3.0% of GDP) in FY2015/16 (July-June) as alternative financing plans for the government's infrastructure projects are likely to prove insufficient. Moreover, substantial political obstacles will prevent the current federal government from implementing any tax and expenditure reforms needed to improve the short and long-term outlook of the country's finances.

Included in Australian Prime Minister Tony Abbott's plan to boost the economy is the abolition of the carbon and mining taxes, as well as a push for more infrastructure projects to lift activity in the slowing construction sector. We believe the Liberal-National government's resolve will only increase as economic activity slows, which will inevitably elevate fiscal deficits in the near-term. Indeed, subdued economic growth suggest that revenue growth will remain weak, and in combination with our expectations for alternative financing methods to be insufficient, and political hurdles to hamper the implementation of any significant fiscal reforms, fiscal finances are likely to deteriorate further. We forecast the fiscal deficit to widen to AUD51.5bn, or 3.0% of GDP in FY2015/16 (July-June), up from AUD23.0bn in FY2012/13 (1.5% of GDP) and a forecasted AUD42.0bn (2.6% of GDP) in FY2013/14. That said, we maintain that Australia's debt to GDP ratio (for total federal debt) is and will remain one of the lowest among developed countries, peaking at 26.9% of GDP in 2018.

Alternative Financing Methods To Provide Little Reprieve

Deficits To Rise In The Near-Term
Australia - Fiscal Revenue, Expenditure & Budget Balance

or Register now for free to read the full article

This article is tagged to:
Related sectors of this article: Economy, Fiscal Policy
Geography: Australia

Access all of our latest analysis, data and forecasts - request a trial