The period since December 2015 has had a dramatic rise in Australian export commodity prices. Back in December 2015 the commodity price index in $US terms,stood at 68.6. By March 2019, this index of export prices had risen to 112.4. That is an increase of 63.8% in $US terms in a little over three years. The increase in the Australian dollar terms over the same period is a slightly higher 67.8%.
These higher commodity prices allow higher nominal growth in GDP and higher tax receipts by the government fromcommodity exporting firms. This increasing tax revenue generates an improvement in the underlying cash balance. We can see the underlying cash balance in Figure 3. In 2018-19, the cash balance is only $4.2billion in deficit. This moves to a surplus of $7.1 billion in 2019-20 and $11 billion in 2020-21. Further surpluses are projected in the following years.
Figure 3: Budget aggregates
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SOURCE: Statement 3: Fiscal Strategy and Outlook – Table 1 - Page 3-5
This improvement in the underlying cash balance is shown most dramatically in Figure 4. Here we can see the underlying cash balance rising as a percentage of GDP. Even though this budget provides significant increasesin spending, the increase in revenue growth is greater. Year by year, the budget surplus becomes stronger and stronger.
Figure 4: Underlying cash balance projected to 2029-30
SOURCE: Statement 3: Fiscal Strategy and Outlook – Chart 2 - Page 3-11
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Where the money goes
In Figure 5 below, we see expenditure outlined in Budget Paper No.1: Budget Strategy and Outlook 2019-20; Statement 5, Expenses and Net Capital Investment. This Budget proposes to spend a total of $500.9 billion. The largest section of spending by far remains Social Security and Welfare. This will consume $180 billion or 36% of total spending. Next comes Other Purposes. What you ask, is Other Purposes? This is the servicing of Australia's sovereign debt. It is the money we pay in interest for the national credit card. Spending here at $98 billion is bigger than every other sector of spending with the exception of one. This will consume 19.6% of budget expenditure.
Figure 5: Estimates of Australian General Government Expenses by Function
This article was first published by Morgans.
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