Colin Brinsden, AAP Economics Correspondent
(Australian Associated Press)
Weak wages growth is threatening the Turnbull government’s forecast for a budget surplus in mid-2021, the International Monetary Fund warns.
The Washington-based institution’s final version of its annual appraisal of Australia’s prospect predicts a further pick-up in economic growth.
But it also sees wages growth at a sub-three per cent, which is below the government’s more optimistic estimate of around 3.5 per cent.
Wages grew by 2.1 per cent over the 2017 calendar year – still close to a 20-year low – Australian Bureau of Statistic figures released on Wednesday showed.
The IMF’s Thomas Helbling, who led a delegation to Australia last year, said corporate income tax revenues were higher-than-expected, largely on the back of stronger commodity prices.
But lower wage and household income growth were a concern.
“There is some risk to achieving the surplus,” Dr Helbling told reporters.
The IMF is predicting the economy will grow by 2.9 per cent this year and 3.1 per cent in 2019, after an estimated 2.2 per cent in 2017.
The gradual acceleration in growth should return the economy to full employment – estimated at around five per cent – by 2020.
A strengthening global economy and domestic infrastructure investment would boost economic growth, while mining investment was bottoming out and would no longer subtract from growth.
Treasurer Scott Morrison said the Turnbull government was sticking to its plan that will continue to support the economy in its transition to broader-based growth.
“It is a plan that is already delivering record jobs growth, and creating the conditions to support stronger wages growth, and putting more money in the pockets of hard-working Australians,” he said in a statement.
Even so, the IMF doesn’t expect inflation to return to the mid-point of the Reserve Bank’s two to three per cent target band until 2021.
As such, Dr Helbling believes cash interest rate settings are appropriate and should “remain supportive” for the economy.
The central bank’s key interest rate has remained at a record low 1.5 per cent since August 2016.
The recent cooling of the housing market was consistent with a “soft landing”, rather than the crash that some have feared, Dr Helbing said.
However, this was happening at a time of high household indebtedness and could lead to consumers being more cautious in their spending habits.
More broadly, there are upside risks to the outlook from a stronger global backdrop and increased infrastructure spending, which could lead to a larger pick-up in non-mining business investment than presently expected.
IMF’S KEY ECONOMIC FORECASTS FOR AUSTRALIA
2018 – 2.9 per cent
2019 – 3.1
2018 – 5.3 per cent
2019 – 5.2
2018 – 2.3 per cent
2019 – 2.3
2018 – 2.1 per cent
2019 – 2.2