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AUSTRALIA: Worse Deficit Path, Treasury Expects Lower Public Demand Than RBA

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The federal government has published its FY25 Mid-year Economic and Fiscal Outlook with revised economic and fiscal forecasts. There are few changes to the economic forecasts with them focused in the current financial year reflecting actual data outcomes. The deficit in FY25 has been revised slightly lower but remains at 1% of GDP. However, the subsequent years are showing a worse deficit trajectory and as a result higher debt ratios. Public demand has been revised up but Treasury’s projections remain materially below the RBA’s.

  • From FY26 the deficit is now forecast to be larger. FY26 has been revised up 0.1pp to 1.6% of GDP, FY27 0.4pp to 1.3% and FY28 0.2pp to 1.0%. This is predominantly due to policy decisions with them accounting for around 80% of the aggregate $21.7bn deterioration in the budget to FY28.
  • The RBA has not been concerned about the inflationary impact from fiscal policy to date. The MYEFO is unlikely to change this but there is an 18% increase in the aggregate deficit from May.
  • Gross debt-to-GDP is only expected to be 0.1pp higher in FY24 at 34% but then rise 2pp to 36% next financial year and then stabilising at 36.7%. Whereas in the May budget it was forecast to begin declining from FY28.
  • GDP growth has been revised down 0.25pp to 1.75% in FY24, driven by private consumption, but the subsequent years are unchanged and continue to show a recovery at 2.25%, 2.5% and 2.75%.
  • Treasury revised up public demand while revising lower private growth. Public is now forecast to grow 3.75% in FY25 up from 1.5% in the May budget and 2.25% in FY26 up from 1.5%. However, the RBA’s November forecasts are at around 4.2% and 3.4% respectively.
  • The headline inflation outlook is unchanged at 2.75% in FY25 and FY26 but wage increases have been revised lower. Employment growth has been revised up 1pp in FY25 but down 0.25pp in the subsequent two years. Migration for this year has been revised up substantially, while next year is unchanged.
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The federal government has published its FY25 Mid-year Economic and Fiscal Outlook with revised economic and fiscal forecasts. There are few changes to the economic forecasts with them focused in the current financial year reflecting actual data outcomes. The deficit in FY25 has been revised slightly lower but remains at 1% of GDP. However, the subsequent years are showing a worse deficit trajectory and as a result higher debt ratios. Public demand has been revised up but Treasury’s projections remain materially below the RBA’s.

  • From FY26 the deficit is now forecast to be larger. FY26 has been revised up 0.1pp to 1.6% of GDP, FY27 0.4pp to 1.3% and FY28 0.2pp to 1.0%. This is predominantly due to policy decisions with them accounting for around 80% of the aggregate $21.7bn deterioration in the budget to FY28.
  • The RBA has not been concerned about the inflationary impact from fiscal policy to date. The MYEFO is unlikely to change this but there is an 18% increase in the aggregate deficit from May.
  • Gross debt-to-GDP is only expected to be 0.1pp higher in FY24 at 34% but then rise 2pp to 36% next financial year and then stabilising at 36.7%. Whereas in the May budget it was forecast to begin declining from FY28.
  • GDP growth has been revised down 0.25pp to 1.75% in FY24, driven by private consumption, but the subsequent years are unchanged and continue to show a recovery at 2.25%, 2.5% and 2.75%.
  • Treasury revised up public demand while revising lower private growth. Public is now forecast to grow 3.75% in FY25 up from 1.5% in the May budget and 2.25% in FY26 up from 1.5%. However, the RBA’s November forecasts are at around 4.2% and 3.4% respectively.
  • The headline inflation outlook is unchanged at 2.75% in FY25 and FY26 but wage increases have been revised lower. Employment growth has been revised up 1pp in FY25 but down 0.25pp in the subsequent two years. Migration for this year has been revised up substantially, while next year is unchanged.