Commonwealth & state budget bulletin 2010

• Macroeconomics

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03 May 2010This report indicates that the economic recovery will likely gather pace in Australia during 2010-11, albeit with ongoing uncertainty surrounding global financial markets. While the Commonwealth budget will be in deficit to the tune of $37 billion in 201011, deficits will be falling to around $7 billion by 2013-14.

Macroeconomics uses this Bulletin to call for structural reform of the Commonwealth Budget and for the Commonwealth and state governments to pursue a more profound microeconomic reform agenda starting with the Rudd government agreeing to implement some of the more challenging recommendations of the Henry Tax Review and setting a timeframe for their introduction.

The good news is that the economic recovery will likely gather pace in Australia for 2010-11, albeit given the ongoing uncertainty on global financial markets.  While the Commonwealth Budget will be in deficit by $37 billion in 2010-11, deficits will be falling to around $7 billion by 2013-14 with the prospect of headline surplus in 2014-15. The economy is expected to grow by around 3 per cent in 201011 and 3.5 per cent in 2011-12.

The bad news is that right now there is no sustainable driver of growth over the outlook given that our terms of trade are expected to return close to a 50 year high next year due to the China Boom. An appropriate policy response is for the Rudd government to seek an election year mandate to undertake a fundamental microeconomic reform program to sow the seeds of a sustainable economic upswing.