More work to do, economists say

Economists say the federal budget is a step in the right direction in addressing the economy's structural problems, but more can be done.

Economists say the federal budget is a step in the right direction in addressing the economy's structural problems, but more can be done.

The budget is expected to have a minimal impact on the economy in the next financial year as most of its cuts will only kick in after that.

"This budget takes a small step down that road [of structural tightening], but ... it is too small and doesn't start for a full year from now," Deutsche Bank economists Adam Boyton and Phil O'Donaghoe said.

Barclays chief economist Kieran Davies said the government needed to make more of a concerted effort to bring the budget back to surplus in the next few years, given the imminent end of the mining investment boom and lower commodity prices.

National Australia Bank economists Alan Oster and Rob Brooker described the budget as a "fairly timid initial approach" to addressing the deficit that was more in line with a "soft economy".

"From a structural viewpoint nearly all of the heavy hitting is from the revenue side and most is done in the out years," they said.

Mr Davies said he doubted the budget would alter the Reserve Bank's outlook for the economy, with governor Glenn Stevens

likely to keep interest rates lower for longer.

HSBC chief economist Paul Bloxham said the modest steps towards fiscal consolidation meant the central bank was unlikely to claim it would be a drag on growth, possibly reducing the need for another rate cut.

Financial markets are pricing in a 17 per cent chance the Reserve Bank will reduce the cash rate in June for the second consecutive month, and a chance of at least one more cut by the end of this year.

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