CEDA 2017 outlook: Deficit and Trump risks for Australia

“Decisions by President Trump and Brexit have already raised economic headwinds that could have profound effects on Australia,” CEDA Chief Executive, Professor the Hon. Stephen Martin said.

“Domestically, the lack of concrete policies to deal with the Federal Budget deficit problem, coupled with the rise of populist parties with slogans but no answers, will play a critical part in determining whether the Australian economy returns another year of modest growth or whether some genuine reform stimulates a much-needed uptick in productivity, employment and growth.

“Our report indicates that gross domestic product growth is expected to lift from two per cent to three per cent in 2017, which hopefully will result in unemployment falling.

“While it is anticipated growth and new jobs are likely to come from resources, infrastructure and agriculture and exports of services and goods to Asia, there are no guarantees while the Federal Government is loath to use its fragile triple A credit rating to borrow to support much-needed infrastructure throughout the nation,” he said.
 
“The rise in Asian incomes has already opened up opportunities for Australia and that will only continue in coming years, in particular around tourism and education, but the question remains: are we ready and do we have the ability to take advantage of these circumstances?”

While the outlook for the economy more generally looks somewhat positive provided there are no major economic events internationally, Professor Martin said one of the key areas of concern domestically highlighted in the report is the Federal Government’s reliance on personal income tax increases to help reduce the Budget deficit.

“Building on CEDA’s 2016 report on returning the Federal Budget to balance, Dr John Edwards highlights that the projected decline of the deficit only occurs because tax receipts are expected to increase, and half of that increase will be contributed by rising personal tax income,” he said.

“The Government’s figures suggest that most individuals by 2019–20 will be paying a higher share of their income as tax than they do today.

“The current approach to returning the Federal Budget to surplus still does not appear realistic and this means that the current and future governments are going to be spending significant amounts servicing interest on debt, rather than delivering services that Australians need.

“As noted in the EPO, the $12.4 billion per year in interest payments is more than the government spends on the universities annually ($9.7 billion), on unemployment benefits ($10.5 billion) or the Pharmaceutical Benefits Scheme ($10.8 billion).”

Professor Martin said the EPO report also examines how to engage communities on economic reform given the growing discontent and instability with mainstream politics both domestically and abroad.

“Mainstream politics is not doing a good enough job of articulating economic reform in terms of life experiences of individuals and communities,” he said.

“CEDA’s economic outlook shows that in advanced economies there is a significant group in the middle income bracket where there has been little income growth between 1988 and 2008.

“People don’t want to feel like they’re being left behind and it is likely this is increasing their distrust in the ability of mainstream political parties.”

However, Professor Martin said CEDA’s report highlights that the rise in populism presents opportunities to construct economic reforms that move beyond partisan politics.

“It seems that neither side of politics is prepared to fully acknowledge the significant Federal Budget problem we have in Australia,” he said.

“Politicking has stopped policies that would help reduce the deficit, but there also seems to be a complacency in acknowledging the seriousness of the issue and the level of action required by the current government.”

CEDA 2017 EPO contributing authors are:

• Economic overview – Michael Blythe, Chief Economist and Managing Director Economics, Commonwealth Bank of Australia.
• Political overview – Katharine Murphy, Political Editor, Guardian Australia.
• Balancing the Budget – Dr John Edwards, Visiting Fellow, Lowy Institute and Adjunct Professor, Curtin University.
• The politics of budgets in 2017, Peter Martin, Economics Editor, The Age.
• Engaging communities in economic reform – Associate Professor Anika Gauja, Department of Government and International Relations, Faculty of Arts and Social Sciences, Sydney University.

The EPO is being launched in Melbourne today with speakers including Michael Blythe, Chief Economist and Managing Director, Economics, Commonwealth Bank of Australia; the Hon. Tim Pallas, Treasurer of Victoria; Holly Kramer, Non-Executive Director, Woolworths, Australia Post, AMP; Lisa Paul PSM, Non-Executive Director, Navitas, Programmed; and Kate Spargo, Chairman, UGL; Non-Executive Director, Sonic Healthcare, Fletcher Building, Adairs, Sigma Pharmaceuticals.

The launch event will be followed by a series of events being held in Perth, Brisbane, Adelaide, Canberra, Hobart, Townsville and Sydney in February and March.

Read and download CEDA's EPO 2017 here.