Australia sees slightly narrower deficit, keeps surplus for 2021

[SYDNEY] Australian Treasurer Scott Morrison forecast a slightly narrower deficit this fiscal year and retained a projected return to surplus in 2021 as he bids to stave off a credit rating downgrade.

The underlying cash deficit was predicted to be A$36.5 billion (S$38.5 billion) in the 12 months through June 30, compared with a A$37.1 billion shortfall forecast in May. However, the government sees wider deficits in the ensuing three years.

"The Australian economy continues to transition from the investment phase to the production phase of the mining boom despite a downward revision to the real GDP growth forecast," Mr Morrison said in a statement, as he cut the fiscal 2017 growth estimate to 2 per cent from 2.5 per cent seen in May. "Exports and household consumption are expected to support growth."

Net debt is forecast to peak at 19 per cent in fiscal 2019, a little lower and a year later than forecast in May.

S&P Global Ratings put Australia on "negative outlook" in July, responding to a knife-edge election that resulted in the government just scraping together a majority in the lower house of parliament.

S&P's take on the outcome was that pressing through fiscal policy decisions would prove even tougher than in the previous term, when opposition parties blocked many proposals.

Two months before that election, Mr Morrison projected the books would return to balance by 2021. S&P wants to see evidence that will be achieved, noting the budget has been in deficit since 2009 and a previous Labor government pledged a surplus would be achieved in 2013. That forecast was eventually ditched at the end of 2012.

BLOOMBERG