Treasurer Scott Morrison insists the government has the federal budget on the right track while setting out parameters for a May announcement about personal tax cuts.
But Labor dismissed the mid-year budget review as a “shabby Christmas present”.
It was one that still contained a tax hike through an increase in the Medicare levy and a $2.2 billion cut to universities funding, while sticking with expensive business tax cuts, the opposition argued.
However, credit rating agency Moody’s Investors Service gave it the thumbs-up, keeping Australia on a triple A-rating with a stable outlook.
“The modest changes in Australia’s fiscal and economic outlook maintain a credit-positive commitment to returning the budget to a surplus,” Moody’s vice president Martin Petch said in a statement.
Mr Morrison is sticking to his promise of a budget surplus by mid-2021 and expects it will be almost $3 billion larger at $10.2 billion than previously forecast.
And for this financial year, Mr Morrison is forecasting a smaller deficit of $23.6 billion compared to the previous estimate of $29.4 billion.
The budget position had improved by $9.3 billion over the four-year budget forecast period since May, largely driven by stronger-than-expected company tax collections and enforcement activity by the Australian Taxation Office.
Government debt will also be $23 billion lower than previously forecast over the same timeframe.
“As we push into the new year, there is still more work to be done but we are on the right track,” Mr Morrison told reporters in Canberra.
His Labor counterpart Chris Bowen said the treasurer wanted a “gold star and a pat on the back” for debt being $23 billion lower, even though it continues to rise under the coalition.
Government debt presently sits at $517 billion and is set to rise to $591 million by 2019/20.
“The global economy is in the best nick it has been in for probably 10 years and so the government has absolutely no excuses for this record and growing debt on their watch,” Labor’s finance spokesman Jim Chalmers told reporters in Sydney.
Mr Morrison flagged personal income tax cuts will be announced for middle-income earners in the May budget as long the government can stick to a clear set of parameters.
“That is no risk to the fiscal position of the government, no risk to our triple-A credit rating, ensuring we maintain our path back to balance,” Mr Morrison said.
However, Treasury’s 2017/18 economic growth forecast was trimmed to 2.5 per cent from 2.75 per cent at the May budget, reflecting modest growth in household consumption.
Growth is expected to accelerate to three per cent the year after.
Recent strong employment numbers have seen forecasts for unemployment cut further – to 5.5 per cent in 2017/18 and 5.25 per cent in 2018/19.
Wages growth though has been trimmed and is expected to weigh on income tax receipts over the next four years.
But HSBC chief economist for Australia and New Zealand Paul Bloxham said after many years where the mid-year fiscal update has disappointed, relative to the May budget, “today’s result was a resoundingly positive one”.