business report

TO DAYS BUSINESS REPORT OF AUSTRALIA Treasury and the Department of Finance have stuck by their budget forecasts, leaving the key numbers and assumptions unchanged. The Pre-election Economic and Fiscal Outlook (PEFO) is the two departments' independent estimate of the Federal Government's budget position. It has left the deficit forecast for 2016-17 unchanged at $37.1 billion, but raised the estimate of the current year's deficit by around $100 million since the budget two weeks ago to $40 billion. The deficits over the four years of the forward estimates are predicted to total $84.6 billion, which is exactly the same as the forecasts and projections on budget night. It is unsurprising that forecasts have remained all but unchanged, given that it is only two weeks since the Treasurer handed down the budget. Any substantial difference in the numbers would have raised concerns about political interference in Treasury's budget forecasts. Instead, the PEFO puts Treasury's stamp firmly on the budget's forecasts and assumptions around the economy and commodity prices, some of which have been questioned as perhaps being optimistic. "The economic and fiscal outlook is broadly unchanged since the 2016-17 budget," PEFO noted. "There remain, as outlined in the budget, significant domestic and global downside risks that will need to be carefully managed." PEFO noted the recent deterioration in some key commodity spot prices but added that, "given short term volatility in prices, these differences are considered not material". It also observed that the exchange rate has fallen somewhat since the budget and the official interest rate had also fallen since that document was prepared, both of which "would be expected to provide further support to real GDP growth, other things being equal."