Australian budget tightening not so stringent

Only a modest fiscal tightening should result from next week's Australia federal budget despite media previews already hitting consumer confidence.

According to ANZ Research, the Australian budget should reveal a deficit of around $A30 billion for 2014-15, down on this year’s expected deficit of $A47 billion.

Recent media coverage has focussed on delays to retirement, less support for families and higher taxes, suggesting more stringent fiscal tightening than we expect. The immediate effect of this coverage has been to hit consumer confidence with measures of confidence falling 8 per cent over the past two weeks.

To ensure Australia is not vulnerable to economic shocks, ANZ Research expects this budget will work towards addressing the real budget problem – medium to long term in nature as expensive new spending programs and an ageing population work against the budget position from 2017-18 onwards.

Our chart shows our current expectations for Abbott’s fiscal tightening is much milder than either the Hawke or Howard efforts.