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And there’s more chance of a female football team in a safe Labor seat being mailed a giant $500,000 cheque made out by Scott Morrison than of wages growing above 3 per cent any time soon.


All this before the summer of hell and now a virus outbreak (and response to that outbreak) which has Hollywood screenwriters licking their lips at a new suite of disaster films.

For all the talk about whether the economy and the budget are going to take a hit even before factoring in the past terrible few weeks, it’s important not to forget that the RBA is holding the cost of money at record lows.

It’s the Reserve Bank doing the heavy economic lifting in a way that is feeding into higher priced assets (thinks houses and shares) while leaving households with more and more debt.

Over in the United States the economy is substantially stronger. But that’s an economy with interest rates at low levels (sub 2 per cent) and the Trump administration running a $US1 trillion deficit with suggestions the President will offer even more unfunded personal tax cuts ahead of the November election.

So “normal” have ultra-low interest rates and support from central banks become in the past decade that the word has lost all meaning.

The novel coronavirus has added new pressure to the economy.

The novel coronavirus has added new pressure to the economy.Credit:Getty Images

That’s the starting point we all need to remember as we head into this year with so much unknown around the true state of the economy.

But we got some insight into what might be going on with the monthly budget figures released by the Finance Department late last Friday.

These figures covered December, which was the same month in which Josh Frydenberg and Mathias Cormann released the mid-year budget update.

The update itself contained a string of downgrades which forced the government to reduce its forecast budget surplus from an original $7.1 billion to $5 billion. That downgrade was due, in part, to the government recognising its earlier forecast about stellar wages growth was a fantasy.

Consumers are already paying more for beef, pork and fruit thanks to the drought.

Consumers are already paying more for beef, pork and fruit thanks to the drought.Credit:Michele Mossop

All up, tax revenues were written down by almost $4 billion.

But budget figures released in December point to something else.

Consumption taxes, such as GST and customs, were about $900 millon short of what had been expected in the mid-year update.

Income tax paid by ordinary workers was $379 million down on expectations. Company tax was $516 million lower while superannuation taxes were $219 million short.

Bottom line, total tax collections at the end of December were almost $2 billion worse than had been tipped in the middle of December.

Back in 2013, the Coalition rightly made much of the way the budget bottom line deteriorated by $1 billion a week between its release (by then treasurer Wayne Swan) and an economic update from his replacement Chris Bowen.

The difference between the mid-year update and what the end of December figures show is about the same.


The concern is that the drop off, particularly around GST and customs, was a sign of two factors. The first was that the lift in retail sales evident in November was just a pull-forward of sales that would ordinarily occur in December.

The second, more concerning, factor is that the smoke and fire hit the second half of December. That’s a poor harbinger for January, and that was before the world learned about the coronavirus.

As Morrison has correctly noted, the drought is also continuing to be a drag on the overall economy (with its impact most evident to consumers with higher priced beef, pork and fruit). Everyone hopes the drought breaks but nothing is assured in this space.

That’s about the only thing record low interest rates can’t solve – a lack of rain.

Shane is a senior economics correspondent for The Age and The Sydney Morning Herald.

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