‘Mini-Credit Crunch’ And China Slowdown To Hit Australia’s Budget

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State and federal government revenue from commodities and stamp duty is surging, Deloitte says, but trouble is looming


Australian governments are experiencing a surge in revenue that will be undermined by a slowdown in China and a “mini-credit crunch” as banks tighten lending standards, Deloitte Access Economics has said.

In its June quarter Business Outlook report Deloitte suggests rising global interest rates are combining with a bout of bank caution on lending that will accelerate falling house prices.

But despite high power prices and falling wealth, the principal of Deloitte, Chris Richardson, points to income tax cuts and a slow recovery in wages to suggest Australia’s outlook remains “good without being great”.

Full time job gains have “been great” and although job growth is easing, continued falls to unemployment will “drive more growth in the size of workers’ pay packets”, he said.

The report suggests that average earnings will increase from 1.4% in 2017-18 to 2% this year, rising to 3.4% in 2022-23. “The wage recovery has begun, but it’s still a case of watching paint dry,” Richardson said.

Inflation is also on the rise but “but not much, and not fast”. The consumer price index is expected to increase from 1.9% in 2017-18 to 2.2% this year.

Despite the rise in inflation, the “mini-credit crunch” caused by tighter lending standards means the the Reserve Bank won’t be raising the official interest rate “until mid-2019 at best and possibly even later still”, Richardson said.

Deloitte forecasts GDP growth of 2.8% last year will rise to 3.2% next year before falling back to 2.9% in 2019-2020 and 2020-21.

The Deloitte report says government revenue is surging off the back of company tax and state stamp duties.

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But it warns “China’s slowdown will slowly seep into commodity prices, winding back profit-driven boosts to federal revenues, while a mini-credit crunch will sound the death knell for the east coast stamp duty bonanza.”

Noting the federal government has cut personal income tax cut – at a cost of $144bn – Richardson concludes that Australia “has repeated an old mistake: spending a temporary revenue boom on permanent promises”.

“We’d prefer to see the budget in better health before any such promises were made.”

Richardson said the first phase of the income tax plan “merely hands back what bracket creep otherwise adds to the tax take” and does little to change the relative share that low, middle or high income earners pay.

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The shadow treasurer, Chris Bowen, seized on the report, which he said was a “devastating critique” of the Turnbull government’s “never-never tax cut plan”.

“Locking in long-term tax cuts when there’s already half a trillion in gross debt and no one knows what the global or domestic economic backdrop will be in four or six years time is sheer madness,” he said.

“By 2025, the combined fiscal impact of big business tax cuts and stage three of the income tax cuts is about $25bn year.

“The Liberal party’s unfunded tax cut plans mean more pressure on debt and a stronger likelihood of further cuts to schools and hospitals over the next decade.”

The Coalition is yet to legislate the corporate tax cut for companies earning $50m or more a year. In June it was forced to shelve the bill because it still needs four more votes from the group of six crossbench senators in Pauline Hanson’s One Nation, Centre Alliance, and independents Tim Storer and Derryn Hinch.

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Centre Alliance’s Rex Patrick told Guardian Australia its position was unchanged – it currently opposes the cut but “would be open” to it if the government can guarantee revenues and not to cut health, welfare and education in the next four years.

He noted that the latest “unexpected changes in tax receipts” have been positive which was “helpful to the government’s argument that they are moving towards surplus and the deficit is under control”.

In noting risks to growth, the Deloitte Access Economics report warned Australia was adding the equivalent of Canberra to its population every year but “delivering less infrastructure than we need, with a resultant impact on our quality of life”.

“If this nation keeps failing to deliver a matching lift in our infrastructure, then the politics of population growth in Australia will grow ever more toxic,” it said.

“If so, the nation’s immigration intake will be cut – perhaps severely – thereby undercutting many of the most likely forecasts underpinning the growth of domestic markets in the forecasts.”

The Turnbull government has so far maintained its support for an immigration cap of 190,000 permanent migrants a year despite the home affairs minister, Peter Dutton, and former prime minister Tony Abbott advocating a cut.

But Dutton has released figures that show a fall of more than 20,000 migrants to a decade-low of 162,417 due a crackdown by his department, leading business leaders to warn of low growth and labour shortages.


Already industrial metals and the CRB commodity index on a monthly timeframe are rolling over. 

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