'Mini-credit crunch' and China slowdown to hit Australia's budget
Australian economy 'Mini-credit crunch' and China slowdown to hit Australia's budget
State and federal government revenue from commodities and stamp duty is surging, Deloitte says, but trouble is looming
Australian governments are experiencing a surge in revenue that will be undermined by a slowdown in China and a âmini-cr edit crunchâ as banks tighten lending standards, Deloitte Access Economics has said.
In its June quarter Business Outlook report Deloitte suggests rising global interest rates are combining with a bout of bank caution on lending that will accelerate falling house prices.
But despite high power prices and falling wealth, the principal of Deloitte, Chris Richardson, points to income tax cuts and a slow recovery in wages to suggest Australiaâs outlook remains âgood without being greatâ.Industry super funds are thrashing those run by banks â" and business is crying foul | Greg Jericho Read more
Full time job gains have âbeen greatâ and although job growth is easing, continued falls to unemployment will âdrive more growth in the size of workersâ pay packetsâ, he said.
The report suggests that average earnings will increase from 1.4% in 2017-18 to 2% this year, rising to 3.4% in 2022-23. âThe wage recovery has begun, but itâ s still a case of watching paint dry,â Richardson said.
Inflation is also on the rise but âbut not much, and not fastâ. The consumer price index is expected to increase from 1.9% in 2017-18 to 2.2% this year.
Despite the rise in inflation, the âmini-credit crunchâ caused by tighter lending standards means the the Reserve Bank wonât be raising the official interest rate âuntil mid-2019 at best and possibly even later stillâ, Richardson said.
Deloitte forecasts GDP growth of 2.8% last year will rise to 3.2% next year before falling back to 2.9% in 2019-2020 and 2020-21.
The Deloitte report says government revenue is surging off the back of company tax and state stamp duties.
But it warns âChinaâs slowdown will slowly seep into commodity prices, winding back profit-driven boosts to federal revenues, while a mini-credit crunch will sound the death knell for the east coast stamp duty bonanza.â
Noting the federal governmen t has cut personal income tax cut â" at a cost of $144bn â" Richardson concludes that Australia âhas repeated an old mistake: spending a temporary revenue boom on permanent promisesâ.
âWeâd prefer to see the budget in better health before any such promises were made.â
Richardson said the first phase of the income tax plan âmerely hands back what bracket creep otherwise adds to the tax takeâ and does little to change the relative share that low, middle or high income earners pay.
The shadow treasurer, Chris Bowen, seized on the report, which he said was a âdevastating critiqueâ of the Turnbull governmentâs ânever-never tax cut planâ.
âLocking in long-term tax cuts when thereâs already half a trillion in gross debt and no one knows what the global or domestic economic backdrop will be in four or six years time is sheer madness,â he said.
âBy 2025, the combined fiscal impact of big business tax cuts and stage three of t he income tax cuts is about $25bn year.
âThe Liberal partyâs unfunded tax cut plans mean more pressure on debt and a stronger likelihood of further cuts to schools and hospitals over the next decade.â
The Coalition is yet to legislate the corporate tax cut for companies earning $50m or more a year. In June it was forced to shelve the bill because it still needs four more votes from the group of six crossbench senators in Pauline Hansonâs One Nation, Centre Alliance, and independents Tim Storer and Derryn Hinch.
Centre Allianceâs Rex Patrick told Guardian Australia its position was unchanged â" it currently opposes the cut but âwould be openâ to it if the government can guarantee revenues and not to cut health, welfare and education in the next four years.
He noted that the latest âunexpected changes in tax receiptsâ have been positive which was âhelpful to the governmentâs argument that they are moving towards surplus and the deficit i s under controlâ.
In noting risks to growth, the Deloitte Access Economics report warned Australia was adding the equivalent of Canberra to its population every year but âdelivering less infrastructure than we need, with a resultant impact on our quality of lifeâ.
âIf this nation keeps failing to deliver a matching lift in our infrastructure, then the politics of population growth in Australia will grow ever more toxic,â it said.Australian economy losing billions due to companies deliberately going broke, PwC finds Read more
âIf so, the nationâs immigration intake will be cut â" perhaps severely â" thereby undercutting many of the most likely forecasts underpinning the growth of domestic markets in the forecasts.â
The Turnbull government has so far maintained its support for an immigration cap of 190,000 permanent migrants a year despite the home affairs minister, Peter Dutton, and former prime minister Tony Abbott a dvocating a cut.
But Dutton has released figures that show a fall of more than 20,000 migrants to a decade-low of 162,417 due a crackdown by his department, leading business leaders to warn of low growth and labour shortages.Topics
- Australian economy
- Wages growth
- Business (Australia)
- Australian politics
- Housing affordability
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