Jo Hockey has handed down his first budget focussing on major cuts to government spending, and the imposition of new taxes, to reduce the budget deficit.
Cuts to hospitals, and to education, of $80 billion over a decade, represent a fiscal contraction that highlights the government’s reliance on cost reduction rather than fiscal expansion, to drive economic growth in Australia.
The budget papers have forecast a slight dip in real GDP growth next financial year to 2.5 per cent, from 2.75 per cent this year. And rising to a target of 3.5 per cent in 2017-18.
The key economic indicator of course is the underlying cash deficit and the treasurer announced that the books would get closer to balance next financial year with a deficit of $29.8 billion, down from this year’s deficit of $49.9 billion.
We spoke to Chris Richardson this morning, from Deloitte Access Economics, and his view was that while popular debate would focus on the austere nature of cuts, that consumer sentiment and stock market shifts would not be greatly effected.
While the markets may largely shrug off last night’s announcement there is sure to be robust debate about the merits of the government’s choice of direction; and of course they now have the challenge of negotiating a path, for this budget, through a hostile senate; coupled with the unsettling potential for a slowdown in demand from China.
