The budget estimates the underlying cash balance at AUD 9.3 billion in the year ending June 2024 (FY24), or 0.3 per cent of gross domestic product (GDP). This is an improvement over the AUD 1.1 billion deficit projected in the December 2023 mid-year economic and fiscal outlook (MYEFO), but in line with Fitch’s earlier forecasts.
The government expects to move to a deficit of 1 per cent of GDP in FY25 and 1.5 per cent in FY26, surpassing the MYEFO projections of 0.7 per cent and 1.2 per cent respectively, with the budget remaining in slight deficit until FY35, albeit on a narrowing trajectory from FY27.
Budget forecasts indicate that central government debt/GDP will peak at 35.2 per cent in FY27, up from 33.7 per cent in FY24. This is slightly less than the projected 35.4 per cent FY28 peak in the MYEFO.
Fitch expects some outperformance on fiscal metrics relative to the budget’s projections, given its conservative revenue estimates.
It forecast a general government deficit of 1.2 per cent of GDP in FY24, but will revise up its earlier 1.4 per cent of GDP deficit forecast for FY25. This compares with a median deficit of 0.3 per cent for ‘AAA’ category sovereigns in 2024 and 2025.
Its previous projection of steady general government debt, at around 48 per cent of GDP, compared with an ‘AAA’ median of around 36 per cent, will also see some upward pressure following the budget.
The improvement in Australia’s public finances over the past several years has narrowed the gap with ‘AAA’ peers, but the country’s fiscal metrics remain at the weaker end of the ‘AAA’ group.
The fiscal outlook continues to face long-term structural challenges.
Fibre2Fashion News Desk (DS)