As per the requirement of the Charter of Budget Honesty, the departments of Treasury and Finance released the Pre-Election Economic and Fiscal Outlook in which the latest economic forecasts and budget projections are outlined.
These economic and budget numbers will form the basis for both sides of politics to cost their spending and taxing decisions in the final 25 days of the election campaign.
The PEFO contained no shocks or surprises, given that Treasurer Chris Bowen released the government’s own economic and budget update 11 days ago, just two days before Prime Minister Rudd called the election. The PEFO numbers are, for all intents and purposes, the same as those released by the government, save for the extra 11 days of new information on government revenue.
It is worth reiterating what Treasury is forecasting.
For GDP growth, Treasury is forecasting a soft 2.5 per cent increase in 2013-14 followed by a return to a trend 3 per cent. In these circumstances, the unemployment rate is projected to peak at 6.25 per cent before falling back to 5 per cent in 2015-16. In these circumstances, inflation is forecast to fall to 2 per cent in 2014-15 before moving to 2.5 per cent, the middle of the Reserve Bank’s target range, thereafter.
These numbers look particularly conservative given the clear upswing in global economic conditions coming through and signs of stronger activity in exports, housing and personal consumption, but it is hard to argue with Treasury given its superior forecasting record. The next few months will help flesh out the outlook and whether the budget position will improve as economic growth outperforms the current Treasury forecasts.
Compared with Bowen’s recent economic statement, the budget bottom line over the forward estimates has ‘improved’ by $0.2 billion (using the rounded numbers), all captured in a small increase in the 2016-17 surplus, which is now projected to be $4.2 billion. All other estimates for the budget bottom line are unchanged from Bowen’s statement.
The PEFO should once and for all kill any mischievous discussion that Treasury is leaned on by government or forced to 'cook the books' to suit the narrative of the treasurer of the day. This is because the PEFO numbers and economic parameters are exactly the same as those released by Treasurer Bowen, aside from there being 11 days extra news to slot into the spreadsheets.
It might be worth pointing out that there are two more budget releases before the end of 2013 – the final budget outcome for 2012-13 which must be released by 30 September, and the Mid-Year Economic and Fiscal Outlook which the new government will release around November or December.
Stephen Koukoulas was senior economic policy advisor to former prime minister Julia Gillard between September 2010 and July 2011.