'Without increasing taxes'

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.