Australian Federal Government announced $1.5bn Budget surplus for 2012-2013 fiscal year, after estimated $44.4bn deficit for 2011-2012
From a big picture viewpoint, this Budget puts in place a process that has effectively produced a marked tightening of the fiscal stance. The Budget itself was relatively neutral in relation to new measures – with most of the work already evident in the Governments mid year review.
Our view is that fiscal policy is now set to detract at least 1% from growth in 2012/2013. This at a time of further evidence of a weakening in demand and surprisingly soft exports. As such, the Budget needs to be seen through the prism of its implications for looser monetary policy. Indeed this, together with the evidence in our NAB Business survey for April, has us to increase our expected rate cuts to 50 points in coming months – rather than 25 points previously– and we would not rule out the possibility of even more being required.
The Treasurer has put great emphasis on the importance on returning to a surplus. And whether he achieves it or slightly fails is not the point. Rather it highlights that the Australian fiscal position is radically different to most other developed economies. The Treasurer clearly has his eye very much on international capital markets (as well as the local political audience)
The Government’s economic outlook appears broadly plausible, although slightly more optimistic than recent Reserve Bank of Australia forecasts, which are broadly similar to NAB’s. The government expects gross domestic product growth of 3¼% in 2012/2013 (NAB 2.9%, was 3.2%).
Market reaction to the Budget was muted, as the forecast surplus was delivered as expected at $1.5 billion for 2012-2013. Most of the key announcements had also been released throughout the day so there were no big surprises at 7.30pm. The AUD and the SPI 200 futures were slightly lower after the Budget release, but the weak start to European markets was a greater influence.
For further information on the 2012 Federal Budget: