Prime Minister Malcolm Turnbull and Treasurer Scott Morrison address the media during a press conference at Parliament House in Canberra on Monday 27 March 2017. fedpol Photo: Alex Ellinghausen Photo: Alex EllinghausenIn a triple blow to the Turnbull government, a global ratings agency has cast doubt on the promised return to surplus, consumer confidence has fallen and wage growth has stalled at an all-time low.
The news puts the government’s budget forecasts at risk in a week when it expected a bounce from its big spending federal budget.
On Wednesday, ratings agency Standard and Poor’s confirmed Australia’s AAA credit rating but left the nation on negative watch and suggested the Turnbull government might struggle to return to surplus by the forecast date of 2020-21.
In a decision that will be seized on by the Coalition as proof of its economic credentials, S&P joined the other two major agencies, Moody’s and Fitch, by affirming the rating following the budget.
However, S&P said the nation’s economic outlook would remain negative because “budget deficits could persist for several years, with little improvement, unless the Parliament implements more forceful fiscal policy decisions”.
In particular, the agency has raised concerns whether projected revenues – for example, income tax revenue from wages – will materialise.
The agency also criticised the Senate’s failure to pass budget savings, highlighting its “unwillingness in recent years to legislate many of the government’s fiscal policy measures, or doing so after considerable delay”.
Wage growth figures released by the Australian Bureau of Statistics on Wednesday confirmed fears the country had entered negative real wage growth territory – pay rises of workers fell behind the rising cost of living, putting strain on household budgets as items become relatively more expensive.
Commonwealth Bank economist John Peters said the wage figures were “a bad omen for consumer spending against the backdrop of record household debt and diffident consumers trying to pay down debt, despite record low mortgage rates”.
While the rate of 1.9 per cent wage growth, an all-time low, matches the government’s budget figures, Treasurer Scott Morrison has been accused of banking on a “hopeful” rise to 3.75 per cent by 2020 to deliver a budget surplus.
Mr Morrison has defended the budget’s wage predictions, by reiterating the Reserve Bank board’s assessment that wages would pick up again once the economy’s transition out of the mining boom was complete.
In a speech to the National Press Club on Wednesday, shadow treasurer Chris Bowen said, if elected, he would rule out tax breaks for workers struggling with sluggish wage growth until the budget was in surplus.
“As treasurer, I would be talking to the ratings agencies early in our term, talking them through our plans,” he said.
S&P reiterated the widespread view of economists that the government’s wage rise prediction is optimistic.
“When these rosy assumptions have not materialised we have been left with a budget deficit that has remained at roughly the same level,” Australia Institute senior economist Matt Grudnoff said.
In a dent to the government’s confidence, the Westpac-Melbourne Institute survey of consumer confidence fell to its lowest level since January.
The survey was conducted from May 8-13, including two days before the budget and four following Treasurer Scott Morrison’s speech.
The survey, which is usually pessimistic after a federal budget, showed 33 per cent of respondents thought their finances had worsened because of the budget, while only 7 per cent thought it had improved.
Confidence in housing plummeted 16 per cent over the year, according to the survey, reaching levels not seen since the global financial crisis.
Westpac warned that housing confidence had been “jolted”, as several analysts call the top of the property boom, with prices in Sydney and Melbourne falling slightly, according to Core Logic.
The only positive figures related to employment, which suggested prospects were picking up.
“However, with a flat response to the budget, respondents remaining concerned about their finances, and no signs of any improvement in wages prospects, the risks of weak household spending feeding back onto employment and investment will remain a concern for policy makers,” Westpac chief economist Bill Evans said.
The survey found the pessimistic view was likely to see the Reserve Bank leave rates on hold throughout 2017 and 2018.
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