From the floor: an expansionary budget

Published May 10, 2021

Expect a smaller fiscal deficit to be announced in the upcoming Australian Federal Budget, according to ANZ Senior Economist Catherine Birch, alongside an uptick in discretionary spending.

Speaking at a briefing in ANZ’s dealing room, Birch said ANZ Research expects the budget to “still represent pretty expansionary fiscal settings, although the deficit is going to be much smaller than was expected even in MYEFO [the government’s mid-year economic forecast]”.

“A lot of the reason for that is because the economy is in a better place,” she said. “So more people back in work [and] more businesses earning more revenue.”

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Birch said ANZ Research was expecting an additional $A10 billion in 2021-22 spending from the budget, but a reduction in the expected deficit by around $A40 billion.

“Cumulatively, we think the fiscal deficit over the four years from 2020-21 will be around $A130 billion better off than was expected just at MYEFO last year,” she said.  

ANZ Research is estimating government spending for the financial year will be equivalent to around 28 per cent of Australia’s gross domestic product – “much higher than the long-run average of 25 per cent,” Birch said.

The economist noted a shift in the language used by policymakers about the labour market and what it meant for policy.

“Even in MYEFO last year, there was still a focus on [getting] the unemployment rate comfortably below six per cent,” Birch said. “Now the government would like to see [that] rate with a four in front of it before they shift attention to fiscal repair.”