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Scope 2017 economic survey: No budget bonanza, weak year ahead

Peter Martin

Few of Australia's leading economists expect the government to deliver the cut in the budget deficit promised.

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Lower growth, less revenue

Leading Australian economists are more pessimistic about the Australian economy than the official Treasury position. Peter Martin explains.

The annual BusinessDay Scope survey of 27 of Australia's most successful forecasters from financial markets, academia, consultancy and industry – reported exclusively in the Fairfax business pages on Saturday – finds that just seven expect the government to cut this year's deficit to the $29 billion promised. Most expect a much higher deficit, some as high as $50 billion.

Approaching its 40th year, the BusinessDay survey includes the forecasters for each of Australia's big four banks and is regarded as the most authoritative. Over time its average predictions have proved to be more accurate than those of its individual members.

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The predicted blowout in the deficit comes despite a doubling in the price of coal and a record trade surplus.

The panel expects the coal price to fall back from about $US80 to $US70 a tonne and the current account deficit to halve. But it believes the boost to corporate incomes won't flow through to tax revenues for some time and will first be written off against tax losses built up expanding mines.

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Wages rises, which boost tax revenue through bracket creep, are expected to be low. The panel is forecasting wage growth of just 2.1 per cent in 2017, only slightly higher than the record low increase of 1.9 per cent recorded in 2016.

"Those jobs that are being created are overwhelmingly part-time," said Newcastle University labor market specialist Bill Mitchell, responding to the survey. "Their occupants are un-unionised, with little bargaining power."

The panel expects economic growth to be just high enough in 2017 to enable the Reserve Bank to hold interest rates steady. The end-of-year forecast of 2.4 per cent is a big improvement on the post-crisis low of 1.8 per cent recorded in the year to September, but a long way short of the 3 per cent calendar year forecast implied in the Treasury's mid-year budget update.

Mining investment will continue to slide for another year, slipping 13 per cent after 40 per cent in 201, offset by only a 3.5 per cent rise in non-mining investment.

Forecaster Stephen Anthony said the best thing the government could do to boost investment would be to borrow at low interest rates to build infrastructure and farm the work out. "Even with low interest rates, businesses aren't finding it worthwhile to borrow on their own account," he said.

Home prices should continue to rise, but more slowly. Sydney prices should climb 4.9 per cent and Melbourne prices 4.3 per cent after climbing 15.5 per cent and 13.7 per cent in 2016.

The sharemarket should grow by only 2 per cent after climbing 6 per cent in 2016.

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