MYEFO predicts growth


20th December, 2021

Optimistic MYEFO predicts growth ahead of election race

The economy has been rocked by fall-out from the pandemic, but still outperformed any major advanced economy in the world, according to the government.

The optimistic Mid-Year Economic and Fiscal Outlook (MYEFO) reveals real GDP is expected to grow by 4.5 percent in 2021, and a further 4.5 percent in 2022 despite the economic hardships Australia’s business community has endured.

Income tax cuts and a strong recovery in the labour market is seeing household consumption increase at its fastest pace in more than two decades.

And temporary tax incentives will drive the strongest increase in business investment since the mining boom, with non-mining investment expected to reach record levels, Frydenberg’s outlook reveals.

Employment to grow

The MYEFO predicts the rapid recovery from Delta imposed lockdowns will result in a further one million jobs between October 2021 and the end of the budget period, which is around 150,000 more jobs than forecast in the 2021/22 Budget.

Australia will be in a better financial position, too. The underlying cash balance in 2021/22 is expected to be a deficit of $99.2 billion (4.5 percent of GDP) a $7.4 billion improvement since the Budget was handed down in May.

Economic and health outcomes are being buoyed by a further $25 billion in direct support committed during the Delta outbreak, bringing our total pandemic support to $337 billion or 16.3 per cent of GDP.

This included more than $7.3 billion in business support payments, $12.6 billion in payments to individuals through the COVID-19 Disaster Payment and further investments in our vaccine rollout and hospitals.

The government has also tipped wages to grow 3.25 per cent in 2024/25, reflecting optimism in the nation’s long-term economic recovery.

This significant improvement in the underlying cash balance occurs while tax receipts as a share of GDP are forecast to fall from 22.9 per cent in 2020-21 to 22.1 percent in 2024-25 due, in part, to the government’s tax reform measures.

The opening of international borders is also set to add to economic improvements, the MYEFO predicts.

Uncertainty remains despite rosy MYEFO

In counterpoint, there’s still uncertainty out there despite the nation’s resilience, according to the chief executive of national employer association, Ai Group, Innes Willox.

“It also highlights some key vulnerabilities that should attract substantial policy proposals from across the political spectrum as we head into an election year,” said Willox.

“While surrounded by an elevated level of uncertainty, the outlook put forward in MYEFO is for a strong rebound in the economy following the Delta-related setback in the September quarter,” he said.

Real wage growth another fly in the ointment

The strength of the rebound was evident in today’s ABS Labour Force data which suggest the labour market recovery could be faster than anticipated in MYEFO.

“While positive, this will also add to businesses’ concerns about skills shortages and the need to more rapidly return to pre-COVID levels of migration and particularly of skilled migration,” said Willox.

“Another area of fundamental concern is the expectation of continued low real wages growth.

“This highlights the importance of policies to encourage higher rates of productivity growth in areas such as skills development, innovation and the further recovery of business investment.”

Mystery box of spending to be revealed ahead of election

Analysis from KPMG indicates that, with a federal election less than six months away, the government has put an intriguing mystery box of $15 billion in spending on the table, but specific spending has not yet been announced.

The expectation is that we will have to wait until 2022, closer to the election, for the contents of this package to be revealed. The 2022-23 Federal Budget is scheduled for 29 March, 2022 and a Federal election must take place before the end of May, 2022.

KPMG insights also reveal that economic growth projections have softened by 2021-22 due to lockdowns in NSW, Victoria and ACT.

Stimulus support is likely to be pulled back sooner rather than later, as the labour market tightens and pockets of inflation emerge across the economy, the research found.

SME loan scheme extended

Meanwhile, the Morrison Government is extending the SME Recovery Loan Scheme by a further six months to 30 June, 2022.

Around 80,000 loans worth approximately $7.3 billion have been written to date since the scheme commenced in March 2020.

The scheme allows lenders to offer borrowers a repayment holiday of up to 24 months, and for loans to be used to refinance any pre-existing debt of an eligible borrowers.