Mid-Year Budget Update Signals Borrowing Surge for Australia
Australia’s budget update hints at rising public borrowing, echoing past financial crises and raising concerns for future economic stability
Australia, Budget, Borrowing, Economy, Albanese
Australia: The country is facing some serious financial challenges. The upcoming budget update is expected to reveal a significant rise in public borrowing, reminiscent of the global financial crisis.
Experts believe that the government’s streak of positive budget news is about to come to an end. The Mid-Year Economic and Fiscal Outlook is set to be released soon, and it’s not looking too rosy.
Since last October, the treasury has upped its tax revenue projections by over $365 billion. This boost is thanks to higher commodity prices, wage growth, and inflation. But it seems that good times might be fading.
Westpac’s senior economist, Pat Bustamante, thinks the budget update will show a better position than expected, but it won’t be as bright as in previous years. He’s been saying for a while that this budget sweet spot couldn’t last forever.
With wages growth and inflation slowing down, the government is likely to see less income from taxes. Bustamante predicts a $4.1 billion upgrade for this financial year, but things could turn negative in the next three years.
Overall, the budget is expected to worsen by $4.7 billion over four years. With tax revenues dropping and spending on things like childcare and energy rebates increasing, borrowing is set to rise to cover the deficits.
In fact, total government borrowing could jump from 3.2% of GDP last year to 6.0% this year, and even higher in the next few years. This situation is similar to what we saw during the GFC and worse than the 1990s recession.
More debt during good times means less room for stimulus when things get tough. Bustamante warns that with rising geopolitical tensions and trade war risks, we could face more economic shocks.
Prime Minister Anthony Albanese might be tempted to call an early election next year, but the next federal budget is currently scheduled for March 2025.
Economy watchers are also keeping an eye on upcoming reports, like the purchasing managers’ indexes and consumer confidence index. In November, consumer sentiment hit its highest point since April 2022, and it might keep climbing as interest rate cuts are anticipated.
Meanwhile, local markets are reacting to a quiet end to the week on Wall Street, with investors waiting for the Federal Reserve’s next moves.
Overall, it’s a bit of a mixed bag for Australia’s economy, and everyone’s watching closely to see what happens next.