The Budget Economics
Economically, it’s a bit too optimistic, but nothing unusual in that.
In particular the forecasts for wages growth look far too high – 2.5% next year rising to 3.5% in 2019-20 and then 3.75% in 2020-21, which gets the budget back to surplus.
More broadly, the forecasts for nominal GDP growth are also too high, but then again, they always are, which is a big part of the reason Treasury always gets the deficit forecast wrong.
Here’s a chart from ANZ showing past and future nominal GDP forecasts, against actual:
The shortfalls between 2014 and 2016 were real shockers, and made a bad fiscal situation far worse. But as you can see, Treasury is sticking with 4-5% nominal GDP growth forecasts, which will depend on inflation kicking up, along with real growth.
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