NSW budget tracking better than expected, in line with our forecasts
Coolabah Capital Investments (CCI) has a contrarian forecast that the state government budgets are going to track better than the states (and the market) expect. We also project similarly positive dynamics at the Commonwealth government's budget level.
CCI’s analysis of monthly financial data shows that the New South Wales budget continues to outperform the state government’s forecast for 2020-21 as a whole, although there will likely be a temporary setback from the recent virus outbreak and the government’s fiscal stimulus could see some deterioration into Q1.
With almost half the financial year over, the seasonally adjusted budget is tracking about $5bn better than implied by a simple interpolation of the government’s forecast of $28.5bn for 2020-21 (or about $3bn better using unadjusted data). In particular:
- Updating CCI’s monthly/quarterly database of state budgets, the seasonally adjusted general government deficit has averaged $1.4bn per month from July to November (in unadjusted terms, the deficit averaged $1.8bn per month over this period). This is better than the average monthly run-rate of $2.4bn implied by the budget’s financial-year forecast for 2020-21, with revenue marginally behind the government’s forecast profile and payments noticeably lower.
- Total revenue has averaged $7.0bn per month in 2020-21 to date, almost the same as the $7.1bn monthly average implied by the budget financial-year forecast. Grants, subsidies and other non-tax revenue are close to the annual budget forecast, although taxes have slipped a little after a strong recovery where residential stamp duty has reached the highest level since 2018.
- Total payments have averaged $8.4bn per month in the financial year to date, less than the $9.5bn monthly average implied by the 2020-21 budget forecast. The wages bill and other current payments are tracking close to the annual budget estimate, while capex and other payments are running below the implied budget profile.
- The better result in 2020-21 suggests that the general government budget deficit will come in below the state government’s November forecast, with a similar improvement in the financing requirement for the non-financial public sector. In the near term, though, the budget may deteriorate given further fiscal stimulus, while high-frequency economic indicators point to a temporary setback from the recent coronavirus outbreak.
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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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Past performance does not assure future returns. All investments carry risks, including that the value of investments may vary, future returns may differ from past returns, and that your capital is not guaranteed. This information has been prepared by Coolabah Capital Investments Pty Ltd (ACN 153 327 872). It is general information only and is not intended to provide you with financial advice. You should not rely on any information herein in making any investment decisions. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information. The Product Disclosure Statement (PDS) for the funds should be considered before deciding whether to acquire or hold units in it. A PDS for these products can be obtained by visiting www.coolabahcapital.com. Neither Coolabah Capital Investments Pty Ltd, EQT Responsible Entity Services Ltd (ACN 101 103 011), Equity Trustees Ltd (ACN 004 031 298) nor their respective shareholders, directors and associated businesses assume any liability to investors in connection with any investment in the funds, or guarantees the performance of any obligations to investors, the performance of the funds or any particular rate of return. The repayment of capital is not guaranteed. Investments in the funds are not deposits or liabilities of any of the above-mentioned parties, nor of any Authorised Deposit-taking Institution. The funds are subject to investment risks, which could include delays in repayment and/or loss of income and capital invested. Past performance is not an indicator of nor assures any future returns or risks. Coolabah Capital Institutional Investments Pty Ltd holds Australian Financial Services Licence No. 482238 and is an authorised representative #001277030 of EQT Responsible Entity Services Ltd that holds Australian Financial Services Licence No. 223271. Equity Trustees Ltd that holds Australian Financial Services Licence No. 240975.
Forward-Looking Disclaimer
This presentation contains some forward-looking information. These statements are not guarantees of future performance and undue reliance should not be placed on them. Such forward-looking statements necessarily involve known and unknown risks and uncertainties, which may cause actual performance and financial results in future periods to differ materially from any projections of future performance or result expressed or implied by such forward-looking statements. Although forward-looking statements contained in this presentation are based upon what Coolabah Capital Investments Pty Ltd believes are reasonable assumptions, there can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Coolabah Capital Investments Pty Ltd undertakes no obligation to update forward-looking statements if circumstances or management’s estimates or opinions should change except as required by applicable securities laws. The reader is cautioned not to place undue reliance on forward-looking statements.
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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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