Frydenberg's budget again surprises with much smaller than forecast deficit, at least $14bn ahead of plan...
The Commonwealth budget continues to improve amidst the largest sell-off in the government bond market since 1994 as Coolabah Capital Investments (CCI) has repeatedly forecast. Data for January show the underlying cash budget for 2020-21 is running about $14bn better than the run-rate required to hit Treasury’s full-year forecast of a $198bn shortfall, which is remarkable considering that Treasury revised down its forecast from an initial estimate of $214bn as recently in December. CCI's seasonal adjustment of the monthly data points to the risk of a greater improvement in the budget, with these figures showing a much larger $25bn turnaround.
Most of the improvement in the budget is due to
spending undershooting the government forecast profile by about $9bn, driven by
lower welfare payments and grants and subsidies.
Revenue is tracking about $5bn above expectations – mainly due to higher
company and super fund tax receipts – although it has lost some momentum after quickly
recovering from the worst point of the pandemic.
While the budget deficit for 2020-21 will still be the largest peacetime deficit on record, the improving trend shows that government is likely to revise down its forecast substantially when the Treasurer brings down the budget in May. This is very important for bond markets because it implies lower supply than investors are currently banking on.
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Based in Sydney, Kieran Davies is Chief Macro Strategist at Coolabah Capital Investments, an asset manager with 40 executives and over $8 billion in fixed-income strategies. Kieran is responsible for macroeconomic research and investment strategy, contributing to the investment decisions of the firm. Kieran has long experience as a macroeconomist in both the private and public sectors. He has worked most recently as Chief Markets Economist for National Australia Bank and was previously Chief Economist, Australia and New Zealand, for Barclays Bank and ABN Amro Bank/RBS. Kieran also worked as Principal Adviser on the macroeconomy and budget policy in the Commonwealth Treasury and Director of Forecasting.
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Based in Sydney, Kieran Davies is Chief Macro Strategist at Coolabah Capital Investments, an asset manager with 40 executives and over $8 billion in fixed-income strategies. Kieran is responsible for macroeconomic research and investment strategy,...
Based in Sydney, Kieran Davies is Chief Macro Strategist at Coolabah Capital Investments, an asset manager with 40 executives and over $8 billion in fixed-income strategies. Kieran is responsible for macroeconomic research and investment strategy,...
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