The current account deficit, once thought of as Australia's biggest economic challenge, will as good as vanish in the year ahead as income from exports exceeds spending on imports for the longest time since the 1970s, according to the Deloitte Access preview of the year ahead.
Deloitte Access is predicting a positive trade balance of $9.7 billion in 2016-17 and $15 billion in 2017-18 after a negative balance of $36.5 billion in 2015-16.
![Coal and other exports will push Australia's current account into surplus, Deloitte Access predicts.](/web/20170129222405im_/http://www.smh.com.au/content/dam/images/g/n/i/l/5/4/image.related.articleLeadwide.620x349.gu0qzj.png/1485726960652.jpg)
The current account deficit, which reflects financial flows as well as trade flows will be just 1.3 per cent of GDP, the smallest since Gough Whitlam was prime minister in the early 1970s.
In the financial year just ended the current account deficit accounted for 4.5 per cent of GDP.
Deloitte Access partner Chris Richardson said the U-turn reflected big gains in the price of coal and iron ore, an "enormous" increase in exports of liquefied natural gas exports and bumper crops and good rainfall, as well as reduced imports of mining equipment as new projects tail off.
Low interest rates meant that foreign debt was easier to service than it had been at any time since the early 2000s.
"There has never been a better time to be a borrower," he told Fairfax Media.
"The even more recent development has been a turnaround in investment flows. At much the same time as shock jocks began to froth at the mouth about foreigners buying Australian property – whether than be outback mega-farms or suburban shacks – the net investment position turned positive."
Mr Richardson said while the bottom line was "beautiful" the net income deficit should worsen a little in the years ahead as domestic and global interest rates picked up and as mining profits were restored, sending more dividend cheques overseas to the foreign owners of resource companies.
During the 1980s Labor treasurer Paul Keating identified the current account deficit as Australia's No.1 economic problem saying economic policy in Australia was, and would "continue to be, directed principally at securing further reductions in our current account deficit".
The result was a severe tightening of interest rates and government spending, both of which contributed to the early 1990's recession.
Decades on, the current account is seen as of less of concern and regarded as the outcome of market forces rather than a policy goal.
The Reserve Bank's index of commodity prices has jumped 50 per cent since February last year. Mr Richardson said the increase wouldn't last.
"Supply is rising, demand is built on quicksand, and the cheap cheap credit currently available to speculators will become less cheap in the years ahead. In combination, that's a recipe for future falls in the terms of trade. However we expect the turnaround towards falls in the terms of trade to come slowly, and it shouldn't detract from the stunning strength of the moment."
While the boost in national income would flow through to wages and real household disposable incomes per capita, which should start rising after stagnating in 2015-16, it would be some time before it flowed through into higher tax revenues.
Spending as a share of national income was climbing, and promises to rein it in would require a populist Senate to do unpopular things.
"Don't hold your breath. Chances are the successful defence of the AAA credit rating in late 2016 was a stay of execution rather than a turning point," he said.