Australia’s federal budget – specifically, federal budget deficit – was a key talking point into the end of last year, after the Morrison government deployed record amounts of stimulus to shield the economy from the pandemic.

"From a forecast surplus of ~$5bn, the government announced a project deficit of $213.7bn for the 2021 financial year."

But with a V-shaped economic recovery and booming commodity prices, UBS reckons that from a projected deficit of $213.7bn for FY21, the government may now be able to get back into surplus as soon as 2024/25.

Bouncing back

The UBS team, led by economist George Tharenou, attributed the “main driver” of budget repair to the strength of Australia’s economic rebound and a healthy jobs market.

Earlier this month, CBA economist Gareth Aird said the consistency of monthly beats in domestic employment numbers had “surprised the entire forecasting fraternity”.

In addition, Australia’s employment-to-population ratio has now rebounded to “near a record high”, UBS said.

More people in work means more people contributing tax revenues (income), and less people in need of JobKeeper support (expenses). UBS added:

"However, a stronger-than-expected global economy contributed to much higher-than-expected commodity prices, especially iron ore."

Importantly, the current price point above $US180/t is around triple the government’s conservative forecast of a fall back to $US60/t, which factors into its federal budget assumptions. As a result, Tharenou said:

"We think higher prices should add at least $20bn to the budget position (and more if sustained ahead)."

Read the full Stockhead article here.

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