(Australian Associated Press)
Australia’s economy is facing more threats to growth than it was just two months ago when the federal government handed down its mid-year budget update, according to the Treasury boss.
Treasury secretary Philip Gaetjens says growth forecasts remain solid but flooding in north Queensland is among risks that weren’t accounted for in December’s update.
That means the government has plenty to think about as it prepares to hand down the next federal budget on April 2.
“We are preparing budget forecasts against a backdrop of increased uncertainty and accumulating downside risks,” Mr Gaetjens told a Senate estimates hearing in Canberra on Wednesday.
The drought affecting eastern Australia is another key area of economic uncertainty on the domestic front, along with downward trends in agricultural production and building approvals.
That comes as growth has eased in Japan and Europe, where Brexit also looms as a source of uncertainty, and trade tensions continue to simmer globally.
The United States and China are in the midst of trade negotiations, which Mr Gaetjens noted could either hamper or help the Australian economy depending on their outcome.
Finance Minister Mathias Cormann said the risks to the economy show now would be the wrong time to increase Australia’s tax burden – a government attack line against Labor as the federal election looms.
“Given all of the other risks we are facing, that would make the Australian economy weaker,” he told the estimates hearing.
But Mr Gaetjens also identified some positive recent developments, with commodity prices running higher than they were assumed at the mid-year budget update.
Employment conditions also remain strong, with jobs growth expected to continue and “ultimately support a pick-up in wage and price growth”, meaning Australians will eventually get a pay rise.
That prediction came as new figures showed wage growth was lacklustre in the three months to December.
Wages grew by a seasonally adjusted 0.5 per cent in the quarter, slightly less than the 0.6 per cent growth predicted, according to the Australian Bureau of Statistics’ latest wage price index.
The next national accounts for the December quarter, due to be released early in March, will be an important indicator of where the economy stands, Mr Gaetjens said.
But he stressed the need for the government to exercise fiscal discipline.
Even with the surpluses forecast in the mid-year budget update for the coming decade, gross debt will stand at 14.6 per cent of gross domestic product in 2028/29.
“It is vital that fiscal discipline be maintained to ensure Australia has budget headroom to be adequately prepared for any adverse surprises,” Mr Gaetjens said.