MYEFO downgrades growth, increases debt but sticks to 2020-21 as surplus year

Today’s Mid-Year Economic and Fiscal Outlook (MYEFO) downgrades Treasury’s forecasts of economic growth and increases the size of fiscal deficits; but it sticks to the projection in the Pre-Election Economic and Fiscal Outlook (PEFO) of the budget returning to surplus in 2021-21 (albeit a revised down, razor thin surplus). The full report is available for download here.

As we can see in the table below, while dwellings investment is expected to be stronger than originally forecast both household consumption and business investment are weaker and total private demand therefore also weaker. Total public demand is forecast somewhat stronger and this will have helped to mitigate against potentially even greater downgrades to GDP forecasts.

2016-17 2017-18
GDP +2.5 +2 +3 +2.75
Household Consumption +3 +2.75 +3 +3
Dwellings Investment +2 +4.5 +1 +0.5
Business Investment -5 -6 0 0
Total Private Demand +1.5 +1 +2.5 +2.5
Total Public Demand +2.25 +3 +2 +2.25
Net Exports +0.75 -0.75 +0.75 +0.5

Treasury present their fiscal forecasts graphically with the addition of 70% and 90% confidence intervals. The graph below, taken directly from MYEFO, highlights how precarious the road to the projected surplus in 2020-21 is likely to be. The 70% confidence interval (i.e. the range within which Treasury are 70% sure the final result will land) is $25 billion for the 2016-17 result which is just 6 months away. As we move further into the future the width of these confidence intervals naturally increases. Imagine therefore how wide this 70% interval would be for the projected tiny “surplus” in 2020-21. When considering outcomes this far into the future it is safe to say that a projection of a surplus is little more than some educated guess-work and a lot of hope.


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