Federal Treasurer Josh Frydenberg has been urged not to squander an unexpected company tax revenue windfall when he hands down his first mid-year budget review next month.
Economist and avid budget watcher Chris Richardson is not keen on the Treasurer blowing a near-$10 billion budget improvement in this financial year on further personal tax cuts.
But he suspects the pressure to try to buy back votes will rule the day before next year’s federal election, even though he predicts the good news on the budget won’t last.
“Promises made on the back of temporary good news – that is the oldest mistake in the budgetary book in Australia,” Mr Richardson, a partner at Deloitte Access Economics, told The New Daily.
In his his twice-yearly Budget Monitor released on Monday, Mr Richardson again pushed the case for a $75 a week “catch-up” payment in unemployment benefit Newstart.
It is an issue the Australian Council of Social Service (ACOSS) has been pursuing for some time and would provide an extra $10.71 a day for more than 770,000 people – the least well off in Australian society.
Mr Richardson said the budget is about far more than deficits or surpluses.
“This nation has one epic fairness fail – the continuing crush we’re putting on the living standards of the unemployed,” he said.
“History won’t judge our record kindly.”
Even so, he believes the budget review will be a good news story for now and will show a decade of deficits drawing to an end.
This is thanks to the good luck of economic conditions, “rather than the hard yards of carefully crafted policy compromises in Canberra”, he says.
There has been a “remarkable” lift in the company tax take, which Mr Richardson forecasts will result in a 2018-19 budget deficit of $4.9 billion, a $9.6 billion improvement on what the government had predicted in May.
The federal government’s latest monthly financial statement for October released on Friday shows this positive development is well under way.
It showed the budget deficit for this financial year running at $15.3 billion after four months, $8.8 billion better than had been earlier forecast.
Mr Richardson also forecasts the government’s flagged surplus for 2019-20 to be $4.2 billion, just under $2 billion better than earlier forecast.
Former prime minister Malcolm Turnbull had promised to bring forward already legislated personal income tax cuts pencilled in for 2022 and 2024 if the budget improved.
Mr Frydenberg unsurprisingly declined to entertain such speculation when interviewed last week.
Mr Richardson expects the company tax take will come within a whisker of $100 billion for this financial year.
That compares with an annual company tax take of around $60 billion just a couple of years ago, he said.
While economic growth in China – Australia’s No.1 trading partner – is weakening, the Asian giant is pumping more stimulus into its construction markets.
That is boosting both coal and iron ore prices to the benefit of Australian miners and, in turn, company tax receipts.
“That won’t be permanent,” Mr Richardson warned.
Also, while there has been continued good news on the employment front, wages growth is likely to remain relatively slow for a while yet, limiting the flow of personal income tax receipts.
Colin Brinsden is AAP’s former economics correspondent based in the Canberra Press Gallery