What if you threw a stimulus party and nobody came?
Treasury’s numbers say Josh Frydenberg is a dud when it comes to trying to stimulate weak consumption.
After the initial cheer-squad reaction from most of the media, there’s a growing realisation that Treasurer Frydenberg’s first budget is a flop.
The government’s immediate challenge – aside from trying to win an election – is to responsibly stimulate an economy that has been turning south since July 1.
Treasury’s best guess about consumption growth is that it will actually be considerably worse in the new financial year than it has been in 2018-19.
That’s frightening news for the retail sector, Australia’s second-biggest employer.
And the weaker consumption is despite the government’s vaunted cash splash – the millions of $1080 direct deposits that are supposed to hit the bank accounts of middle-income earners in July and August.
The Morrison-Frydenberg rhetoric was big on strong economic growth, but the budget’s forecast performance is a flop.
The tell-tale evidence is tucked away in the budget paper’s estimates of GST collections – as good an indication as any for consumer confidence and spending.
On page 13 of Statement 4, Treasury says GST receipts are expected to have grown by 4 per cent this financial year, but will only grow by 2.4 per cent next year.
Given the cash splash and the increased immediate write-off benefit for a bigger number of small-to-medium enterprises, that is absolutely extraordinary.
It hints at the deeper malaise in the economy that the government refuses to directly address – the dive in consumer confidence and capacity after half a dozen years of real take-home wages going backwards, thanks to a steadily increasing income-tax take and an effective wages strike, not to mention the loss of penalty rates and higher energy costs.
The $1080 direct deposits were meant to fix that, giving average Australians a genuine lift in disposable income. It seems it’s too little, too late.
Treasury expects GST collections over the next four years to be a total of $10.3 billion lower than in its MYEFO estimates just four months ago.
Elsewhere in the budget papers, Treasury lays the blame on “downward revisions to the forecasts for growth in consumption and dwelling investment”.
On the second of those two factors, everyone knows and has known about the expected and inevitable fall in building approvals.
The government has chosen to do nothing about that when there is a golden opportunity to take advantage of the market with more social and affordable housing.
It’s the first part that is most immediately concerning, that consumption growth is weakening from an already weak level.
As reported regularly on these pages, the fall in new vehicle sales every month of this financial year has been sending a warning about household consumption.
The latest figures, for March, continued that trend – new vehicle sales down 7.1 per cent on the previous corresponding period.
Also on Wednesday, the Australian Bureau of Statistics delivered February retail sales numbers. In seasonally-adjusted terms, they were a welcome bounce after a series of poor reports.
But the trend series that tries to even out monthly volatility showed retail sales growth has been stuck at 0.2 per cent for seven of the first eight months of this financial year.
Now Treasury is telling retailers that consumption growth is going to be weaker than that.
By the looks of the latest NAB business conditions survey, retailers already know that – their employment expectations have turned negative.
Meanwhile, the states have woken up to the hit to their expected income from the weaker GST collections.
No, this federal budget does not promote strong, sustainable growth.
Other budget threads are unravelling under closer analysis.
The Guardian’s Anne Davies has shown that much-ballyhooed forecast of a $7 billion surplus “has been pumped up by a combination of accounting bring-forwards and tough administration around a series of welfare programs that will cause them to be underspent in the coming year”.
The smoke-and-mirrors make up $4 billion of the promised $7 billion.
Mike Bruce reports on these pages on how economists are extremely sceptical – with good reason – about the extraordinary claim that the Commonwealth’s net debt of $370 billion will be wiped out in a single decade.
And there are any number of the minor announcements trumpeted in the budget that don’t quite match the reality, such as the $2 billion for a Melbourne-Geelong fast train.
The more you look into this budget, the more it looks like a political document thrown together by a chaotic government that doesn’t expect to be around to have to implement it.
P.S: While searching for the GST figures, I accidentally dialled up the 2017-18 budget papers which included this paragraph: “The 2017-18 budget forecasts for tax receipts have been revised up by $6.4 billion over the four years to 2019-20, as a result of policy decisions including increasing the Medicare levy, introducing a major bank levy, improving the integrity of GST on property transactions, and introducing a Skilling Australians Fund levy.”
That was Scott Morrison’s first budget. Don’t believe his rhetoric about not increasing taxes.