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Record Aussie wealth. Budget deficit improves.

Aussie population growth hits 15-year low
Mid-Year Economic and Fiscal Outlook (MYEFO); Population; Finance & Wealth

Budget: The Federal Government is projecting a $197.7 billion underlying cash deficit (9.9 per cent of GDP) for the current financial year, down from the $213.7 billion deficit (11 per cent of GDP) previously forecast in October’s Federal Budget – an improvement of $16 billion. By 2023/24, the deficit is forecast to fall to $66.0 billion (3 per cent of GDP). The overall Budget position is estimated to improve by $24.9 billion over the forward estimate period.

Australia’s population: increased by 321,296 people – the smallest increase in 9 years – to 25,687,041 people over the year to June. Overall, Australia’s annual population growth rate eased from 1.44 to 1.27 per cent – the slowest pace in 15 years. Natural increase contributed 42.7 per cent to the annual lift in population with 57.3 per cent from migration.

Population growth by state & territory: Over the year to June, population growth was strongest in Queensland (1.58 per cent), followed by Victoria (1.49 per cent), Western Australia (1.47 per cent), the ACT (1.13 per cent), Tasmania (1.12 per cent), NSW (0.95 per cent), South Australia (0.95 per cent) and the Northern Territory (-0.07 per cent).

Wealth: Total household wealth (net worth) rose by 1.7 per cent to a record high $11,351.1 billion in the September quarter to be up 3.5 per cent on a year ago. Average (per capita) household wealth rose by $6,850 (1.6 per cent) in the September quarter to $441,649 to be up 2.7 per cent over the year.

The population data provides insights on the job market, wages and prices, and ultimately on interest rates. The wealth data is important as a guide to future spending.

What does it all mean?

• Feeling rich? Aussie household wealth hit record highs in the September quarter. Average (per capita) household wealth rose by $6,850 (1.6 per cent) in the September quarter to $441,649 to be up 2.7 per cent over the year. Why? Residential assets, deposits and superannuation balances all grew.

• The Federal Budget deficit is a deep shade of red. That said, Australia’s Budget bottom line has improved since Federal Treasurer Josh Frydenberg handed down his delayed pandemic figures on October 6. In fact, the underlying cash deficit was $16 billion lower than a couple of months ago in today’s released Mid-Year Economic and Fiscal Outlook (MYEFO).

• In terms of the details, soaring iron ore prices boosted company tax receipts and the stronger-than-expected job market has reduced government spending on its signature wage subsidy program – JobKeeper. Net debt will hit an ‘eye watering’ $952 billion by June 2024. But with Mr. Frydenberg acknowledging that, “The unemployment rate is expected to recover to pre-COVID levels in around four years,” now is not the time to turn the fiscal policy taps off with the jobless rate now expected to peak at 7.5 per cent. Around 942,100 Aussies were still jobless in November with the job recovery remaining ‘front and centre’ of policy stimulus efforts.

• The forecasts in MYEFO included the impact of slower population growth. Data from the Bureau of Statistics (ABS) shows that annual population growth slowed to a 15-year low of 1.27 per cent in June 2020. Australia’s population lifted by just 321,296 people over the year to June – the smallest increase in 9 years. Annual population growth is below 1 per cent in NSW for the first time in 13½ years!

What do the figures show?

• Mid-Year Economic and Fiscal Outlook (MYEFO)

• The Federal Government is projecting a $197.7 billion underlying cash deficit (9.9 per cent of GDP) for the current financial year, down from the $213.7 billion deficit (11 per cent of GDP) previously forecast in October’s Federal Budget – an improvement of $16 billion. By 2023/24, the deficit is forecast to fall to $66.0 billion (3 per cent of GDP). The overall Budget position is estimated to improve by $24.9 billion over the forward estimate period.

• The net operating balance is expected to be a deficit of $185.2 billion (9.2 per cent of GDP) in 2020/21, before decreasing to an estimated deficit of $57.1 billion (2.6 per cent of GDP) in 2023/24.

• The Government expects the economy (real GDP) to grow 0.75 per cent in 2020/21 (previously: -1.5 per cent) and 3.5 per cent in 2021/22 (previously +4.75 per cent). And the unemployment rate is now expected to peak at 7.25 per cent (previously 8 per cent) in 2020/21, before easing to 6.25 per cent in 2021/22 and fall below 6 per cent in 2023/24.

• Net debt is expected to be 34.5 per cent of GDP at 30 June 2021 before peaking at 43.0 per cent of GDP at 30 June 2024.

• Gross debt is forecast at 42.5 per cent of GDP at 30 June 2021 before increasing to 51.5 per cent of GDP at 30 June 2024.

• Revenue: Receipts are expected to increase to $473.1 billion (23.6 per cent of GDP) in 2020/21 before increasing to $526.3 billion (23.8 per cent of GDP) in 2023/24.

• Expenses: Compared to the 2020/21 Budget, payments are expected to decrease by $6.5 billion to $670.9 billion (33.4 per cent of GDP) in 2020/21, and then decrease to $592.2 billion (26.8 per cent of GDP) in 2023/24.

• Policy decisions, including measures under the Government’s Economic Recovery Plan, have reduced the underlying cash balance by $4.9 billion in 2020/21 and $12.1 billion over the forward estimates period.

• Commodity assumptions: The iron ore spot price assumed to decline to US$55/tonne free-on-board (FOB) by the end of the September quarter 2021; metallurgical coal spot price assumed to remain at US$103/tonne FOB; and thermal coal spot price assumed to remain at US$61/tonne FOB.

• Population Statistics – June quarter

• Australia’s population increased by 321,296 people – the smallest increase in 9 years – to 25,687,041 people over the year to June. Overall, Australia’s annual population growth rate eased from 1.44 to 1.27 per cent – the slowest pace in 15 years. Natural increase contributed 42.7 per cent to the annual lift in population with 57.3 per cent from migration.

• Over the year to June, population growth was strongest in Queensland (1.58 per cent), followed by Victoria (1.49 per cent), Western Australia (1.47 per cent), the ACT (1.13 per cent), Tasmania (1.12 per cent), NSW (0.95 per cent), South Australia (0.95 per cent) and the Northern Territory (-0.07 per cent).

• Australia’s population grew by 29,300 people or 0.1 per cent in the June quarter.

• Net overseas migration totalled 184,200 people over the year to June – the lowest intake of net overseas arrivals in 5 years – to be down 23.7 per cent from a year ago.

• There were 304,100 babies born in the year to June, down from 305,000 births over the year to March.

• And there were 167,100 deaths in the past year, up by 4,000 or 2.4 per cent on the previous year.

• Natural increase (births less deaths) for the year to June was 137,200, to be down by 3.2 per cent.

• Financial Accounts: September quarter

• Total household wealth (net worth) rose by 1.7 per cent to a record high $11,351.1 billion in the September quarter to be up 3.5 per cent on a year ago.

• Average (per capita) household wealth rose by $6,850 (1.6 per cent) in the September quarter to $441,649 to be up 2.7 per cent over the year.

• Household assets rose by 1.4 per cent in the September quarter and non-financial assets rose by 1.1 per cent while financial assets rose by 1.9 per cent.

• The Bureau of Statistics noted (media release): “Increases in residential assets (1.2 per cent), deposits (5.4 per cent), and superannuation balances (1.1 per cent) were the main contributors to the growth in household wealth.”

• “Residential assets rose $86.8 billion, recouping the losses experienced in the June quarter. Holding gains of $73.6 billion on residential assets reflected a rebound in property prices as social distancing measures (restrictions on auctions and open house inspections) eased and economic conditions began to improve.”

• “Household deposits increased a record $63.7 billion as households continued to save at elevated levels during the September quarter. Continuing government income support packages such as JobKeeper, economic support payments, and early access to superannuation were key drivers of the increase in deposits. This was in addition to the normal increase in deposits in September quarters due to tax refunds.”

• Households held a record $1,293.6 billion in cash and deposits at the end of September. Cash and deposit holdings represented 22.1 per cent of financial assets. The share of cash and deposits stands near the 21.5 per cent average since the global financial crisis and long-run average of 21.4 per cent.

• Households held $1,057.4 billion in shares, up 0.1 per cent in the September quarter. Listed share holdings were 18.1 per cent of all financial assets in the September quarter, down from 18.4 per cent in the June quarter, and below the 19.5 per cent average since the global financial crisis as well as the long-run average of 22.1 per cent.

• Pension fund (superannuation fund) assets rose by $36.0 billion to $2,411.4 billion in the September quarter. Cash and deposits stood at 11.1 per cent of assets, below the 12.2 per cent average since the global financial crisis, but above the long-term average of 9.2 per cent.

• Foreigners held $627.4 billion of Aussie listed shares in the September quarter, up by $15.8 billion in the quarter. Foreigners held 32.3 per cent of total listed shares, just below the 32.5 per cent average since the global financial crisis and below the long-term average of 34.8 per cent.

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.

• Population statistics are issued by the Bureau of Statistics each quarter. The figures include estimates of births, deaths, in-bound and out-bound migration movements and estimates of population change by State.

• The Australian Bureau of Statistics releases the Finance and Wealth publication each quarter. The data covers assets, liabilities and financial flows for the key sectors of the economy. Figures on financial wealth help reveal the true state of household and corporate finances.
What are the implications for investors?

• With the Federal Government estimating that unemployment will remain well above the Reserve Bank’s “full employment” target of 5 per cent or lower for the foreseeable future, interest rates will remain anchored at record lows for some time. The Reserve Bank also has capacity to increase its bond buying program, if need be, but it is apparent that the Federal Government is well aware that a potential scaling-back of policy spending and stimulus could undo both consumer and business confidence – both crucial to the pandemic jobs and economic recovery.
Important Information

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Published by Ryan Felsman, Senior Economist, CommSec