MYEFO leaves the hard work on inflation, debt and budget repair undone |
The latest MYEFO shows only marginal improvement in the budget outlook, while deficits persist and fiscal settings continue to complicate the Reserve Bank’s task.
Wednesday’s Mid-Year Economic and Fiscal Outlook (MYEFO) – the half-yearly review of the 2025-26 Budget presented back in March, just before the most recent Federal election was called – does little to ameliorate the challenge now facing the RBA in getting inflation back into its 2-3 per cent target band without back-tracking on at least some of the three reductions in interest rates which it implemented earlier this year.
Treasurer Jim Chalmers and Finance Minister Katy Gallagher are congratulating themselves for foreshadowing ‘underlying’ cash deficits totalling $143.2 billion (equivalent to an average of 1.2 per cent of GDP) over the four years to 2028-29, $8.7 billion (or 0.1 pc pt of GDP) less than had been projected in the March Budget.
Of that improvement, $2.2 billion comes from policy decisions – and, as they note, this is the first time in eight years that policy decisions have resulted in an improvement rather than a deterioration in the ‘bottom line’. That $2.2 billion comprises of $3.8 billion of net savings in payments (none of which occur until the 2027-28 financial year – policy decisions actually increase payments by $1.8 billion in 2025-26 and 2026-27), partly offset by $1.6 billion in reductions in receipts, largely stemming from the changes to the Government’s plans to increase tax on large superannuation balances announced in September.
The remaining $6.2 billion in improvements to the ‘underlying’ cash balance over the four years to 2028-29 comes from what budget documents call ‘parameter variations’ – that is, changes to forecasts and other assumptions underpinning the forward estimates of payments and receipts – with the former being revised up by $35.1 billion over the four years to 2028-29 and the latter by $41.3 billion (as in previous years, in large part because........