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'Without increasing taxes'

By Michael Knox - posted Monday, 8 April 2019

A Treasurer's speech is usually a budget document. It is crafted as a budget document by the Treasurer's advisors to include lots of relevant facts. This speech was crafted primarily as a political speech. Much more work has gone into it than is usually the case. It is a document about communication, not just facts.

Figure 1: Major economic parameters


SOURCE: Budget Paper No 1: 2019-20, Table 2: Page 1-8

Frydenberg is communicating that he can provide a greater amount of spending to a broader range of political need groups than anyone thought possible. While everybody has been talking about how bad the economy is, Frydenberg is finding money whenno one thought it was possible.

The economy,while not in a boom, is an economy that is doing much better than most of us had suspected. We can see this in Figure 1,drawn from Budget Paper No.1, page 1-8. This shows us that growth should accelerate from 2.25% in 2018-19 to 2.75% in 2019-20. It holds that growth rate of 2.75% in 2021. The result of this is that unemployment stays at its current low level of 5%.

Inflation, after falling to 1.5% in 2018-19, rises to 2.25% in 2019-20, and 2.5% in 2020-21. This suggests there will be no increase in the Australian cash rate, at least as far as 2020-21.

Wages growth, on the other hand, accelerates. After 2.5% growth in 2018-19, wages rise to 2.75% in 2019-20, and 3.25% in 2020-21. They rise by 3.5% in 2021-22.

Figure 2: RBA Index of export prices in $US


SOURCE: Reserve Bank of Australia

At a time when the economy is believed to be weak, how can Frydenberg achieve such magical results? Budget Paper No. 2, page 2-20 shows this as an improvement in the terms of trade. We have shown it in our Figure 2 above more simply as an increase in commodity prices. Figure 2 shows Australian export commodity prices as the index of commodity prices in $US terms, which arepublished by the RBA. Figure 2 shows us the RBA numbers from January 2015 to now.

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This article was first published by Morgans.


The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual’s relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so. Those acting upon such information without advice do so entirely at their own risk.

This report was prepared as private communication to clients of Morgans and is not intended for public circulation, publication or for use by any third party. The contents of this report may not be reproduced in whole or in part without the prior written consent of Morgans. While this report is based on information from sources which Morgans believes are reliable, its accuracy and completeness cannot be guaranteed. Any opinions expressed reflect Morgans judgement at this date and are subject to change. Morgans is under no obligation to provide revised assessments in the event of changed circumstances. This report does not constitute an offer or invitation to purchase any securities and should not be relied upon in connection with any contract or commitment whatsoever.

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About the Author

Michael Knox is Chief Economist and Director of Strategy at Morgans.

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All articles by Michael Knox

Creative Commons LicenseThis work is licensed under a Creative Commons License.

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