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Budget on track to surplus; Petrol eases;Chinese tourism slowdownMid-Year Economic and Fiscal Outlook (MYEFO); Petrol; Tourism
Budget: The Federal Government is projecting a $5.2 billion underlying cash deficit (0.3 per cent of GDP) for the current financial year (2018/19). The May 2018 budget had forecast a deficit this year of $14.5 billion. A budget surplus of $4.1 billion is now expected in 2019/20.
Petrol: According to the Australian Institute of Petroleum, the national average Australian price of unleaded petrol fell by 1.3 cents to 138.6 cents a litre.
Tourism: Tourist arrivals rose by 1.1 per cent in October with Aussie tourist departures up by 2.4 per cent. Tourists from China hit record highs over the year but annual growth of Chinese inflows is the slowest in eight years.
What does it all mean?
Company profits are at record highs. The jobless rate is at 6-year lows. So with companies making more money and more people getting jobs, government tax revenue is soaring. At the same time, the Government has shown discipline on spending. In fact the Government claims real spending growth of just 1.9 per cent is the lowest in 50 years. So nobody should be surprised that the Budget is in better shape than estimated just over seven months ago.
On revenues alone, total receipts are estimated to be $8.3 billion higher than at Budget time in May.
The budget is clearly in good shape and that brings with it risks – especially the risk that both sides of politics will ramp up spending in the run up to the Federal Election,expected in May 2019.
In fact the annualised deficit in the year to October is just $2.3 billion, suggesting that a surplus is possible this financial year – if the Government doesn’t lift spending.
The good news is that both the Reserve Bank and the Government are well placed to stimulate the economy should it become necessary over the coming year.
Is Chinese tourism to Australia a victim of the US-China trade dispute? Annual growth was set to slow at some point, but the slowdown over the past six months is marked.
Broadly across the country petrol prices are falling in the lead-up to Christmas. On current trends, prices have further to fall, providing Australian motorists with an earlyChristmas present.
Wholesale unleaded petrol prices are down 32 cents a litre from recent highs while pump prices are down only 22 cents. Given the significance of petrol in household budgets, lower pump prices should boost spending power. 
What do the figures show?
The Federal Government is projecting a $5.2 billion underlying cash deficit (0.3 per cent of GDP) for the current financial year. The May 2018 budget had forecast a deficit this year of $14.5 billion. A budget surplus of $4.1 billion is expected in 2019/20. By 2021/22, the surplus is expected to be $19 billion or 0.9 per cent of GDP. 
The net operating balance is expected to be in surplus by $4.9 billion this year (2018/19). The May Budget had forecast a $2.4bn deficit this year.
The Government expects the economy to grow by around 2.75 per cent this year, below its May Budget forecast of 3 per cent. Estimated growth for the forward estimates is unchanged at 3.0 per cent through to 2021/22.
Debt. As a result of the improved budget position, net debt as a share of GDP is expected to decline in each year of the forward estimates and medium term, falling from 18.2 per cent in 2018-19 to 1.5 per cent in 2028-29.
Gross debt, in per cent of GDP terms, is estimated to have peaked in 2017-18 and to then decline over the medium term.
Revenue. Since the 2018-19 Budget, expected total receipts have been revised up by $8.3 billion in 2018-19 and $12.4 billion over the four years to 2021-22. This revision reflects stronger-than-expected collections from taxes on individuals and company tax, stronger employment growth projections and higher growth in corporate profits in 2018-19, particularly mining company profits. Tax receipts are projected to remain below the Government’s tax-toGDP cap of 23.9 per cent until 2025-26, when the cap takes effect.
Expenses. The payments-to-GDP ratio, which was 25.4 per cent in 2013-14, is expected to be 24.9 per cent in 2018-19, falling to 24.6 per cent by 2020-21, below the 30-year historical average of 24.7 per cent. Average annual real growth in payments over the five years from 2017-18 is expected to be 1.9 per cent.
Policy decisions. Since the May 2018 budget and up to the Mid-Year review, policy decisions have lifted the deficit by $1.9 billion this year and will reduce the projected surplus by $4 billion in 2019.20.
Commodity assumptions. The iron ore spot price is assumed to be US$55 per tonne free-on board (FOB) over the forecast period. The metallurgical coal price is assumed to decline to US$120 per tonne FOB through the March and June quarters of 2019, later than assumed at the Budget. The thermal coal price is assumed to be US$93 per tonne FOB over the forecast period, unchanged from the Budget.
Petrol prices
According to the Australian Institute of Petroleum the national average price of unleaded petrol fell by 1.3 cents a litre last week to 138.6 cents a litre.
The metropolitan petrol price fell by 0.9 cents to 138.0 cents per litre, and the regional price fell by 2.0 cents to 139.8 cents per litre. The gross retail margin fell from a record 24.7 cents a litre to 23.1 cents. The smoothed twomonth rolling average margin rose to a record 18.5 cents/litre.
Average unleaded petrol prices across states and territories over the past week were: Sydney (up by 1.8 cents to 138.4 c/l), Melbourne (down by 3.4 cents to 137.4 c/l), Brisbane (down by 6.4 cents to 140.6 c/l), Adelaide (up by 15.0 cents to 137.9 c/l), Perth (down by 2.3 cents to 129.6 c/l), Darwin (down by 6.6 cents to 141.7 c/l), Canberra (down by 4.1 cents to 151.2 c/l) and Hobart (down by 2.1 cents to 155.2 c/l).
Today, the national average wholesale (terminal gate) unleaded petrol price stands at 115.8 cents a litre, up by 0.6 cents over the week. The terminal gate diesel price stands at 125.8 cents a litre, up by 0.2 cents over the past week. The wholesale unleaded price is down almost 32 cents a litre from recent highs.
The national average diesel petrol price fell by 2.8 cents to 149.0 cents a litre over the week. The metropolitan price fell by 2.9 cents to 148.1 cents a litre with the regional price down by 2.7 cents to 149.8 cents a litre.
Last week the key Singapore gasoline price rose by US$1.43 or 2.3 per cent to US$61.57 a barrel – the biggest increase in 10 weeks. In Australian dollar terms, the Singapore gasoline price rose by $2.51 or 3 per cent last week to $87.63 a barrel or 55.12 cents a litre.
MotorMouth records the following average retail prices for capital cities today: Sydney 131.1c; Melbourne 131.0c; Brisbane 134.3c; Adelaide 128.1c; Perth 117.2c; Canberra 147.2c; Darwin 141.1c; Hobart 153.8c.
Overseas arrivals & departures
Tourist arrivals rose by 1.1 per cent to 780,800 in October after falling 2.4 per cent in September and rising 4.7 per cent in the prior four months. Arrivals are up 3.0 per cent over the year.
Aussie tourist departures rose by 2.4 per cent in October after falling by 1.7 per cent in September and rising by 2.5 per cent over the previous two months. Departures are up 6.1 per cent over the year.
Over the 12 months to October, arrivals are up 5.2 per cent and departures up by 4.5 per cent.
The annual number of permanent and long-term overseas arrivals rose to a record high 825,480 in October, up by 6.1 per cent over the year.
In October, tourists from Greater China (China and Hong Kong) totalled 150,500 (mainland China 124,800; Hong Kong 25,700), ahead of New Zealand (116,700).
China is the largest source of tourists to Australia. Over the past year a record 1,439,100 tourists came to Australia from China, up by 5.4 per cent.
Tourists from New Zealand totalled 1,380,500 visitors over the past year, up by 1.8 per cent.
A record 350,000 Indian tourists travelled to Australia over the year to October, up by 18.3 per cent.
In October alone, there were record tourist inflows from Belgium, France, India, Canada and Chile.
What is the importance of the economic data?
The Mid Year Economic and Fiscal Outlook report is presented by the Government around mid-December each year. The report is an update on how the Federal Budget is tracking and is therefore an update on the fiscal policy stance of the Government.
Weekly figures on petrol prices are compiled by ORIMA Research on behalf of the Australian Institute of Petroleum (AIP). National average retail prices are calculated as the weighted average of each State/Territory’s metropolitan and non-metropolitan retail petrol prices, with the weights based on the number of registered petrol vehicles in each of these regions. AIP data for retail petrol prices is based on available market data supplied by MotorMouth.
The Australian Bureau of Statistics releases data on overseas arrivals and departures is produced monthly and is an indicator of the health of the tourism sector. The figures are also useful in understanding spending trends and tracking migrant numbers – an indicator with widespread implications for employment, housing and spending. 
What are the implications for interest rates and investors?
There was no reaction from the Aussie dollar to the latest Budget update. The Aussie dollar is hovering near US71.75 cents – a favourable level for Aussie businesses, especially exporters.
The strong Budget position gives scope for both sides of politics to lift spending. Expansive fiscal policy would further strengthen the Reserve Bank policy bias in favour of rate hikes.
CommSec hasn’t changed its view on rates, still believing that the Reserve Bank will start the “normalisation” process of gradually lifting the cash rate in around a year’s time.
More tourists come to Australia from China than any other nation. And inflows have been soaring. That is the good news. But annual growth of Chinese tourists is now the slowest in 8½ years. So it is a situation to watch. And the slowdown may have implications for airlines and tourism-dependent businesses.
Aussie petrol prices are falling at the right time – that is, as people start to take annual leave and as schools break for the long holiday period. Filling up the car with petrol is the single biggest weekly purchase for most households. So the extra dollars will come handy in the key spending time of the year.
Published by Craig James, Chief Economist, CommSec