The Budget Economics

By Alan Kohler | More Articles by Alan Kohler

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.

About Alan Kohler

As well as being the founder of The Constant Investor, Alan is currently business editor at large of The Australian, finance presenter on ABC news, presenter of the Talking Business channel on Qantas inflight radio and adjunct professor in the business faculty of Victoria University.

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