MYEFO today

Not sure if there will be any rabbits out of the hat with the MYEFO today, but the Government's fiscal and economic management skills will be on display for all - including the RBA - to see.

The slower economy than envisaged at Budget time in May has delivered a $20 billion hit to revenue, or so it is reported, which spread evenly over the Budget estimates would trim $5 billion off the bottom line per year. If unchecked, there would be a deficit in 2012-13 and 2013-14, something unwelcome given the broad influences impacting the Australian economy now.

A conservative haircut rather than a back, crack and sack wax for Government spending is in order to make sure the surplus projections are maintained.

From MYEFO, expect to see a very low tax to GDP ratio for 2011-12 and beyond, driven by flat real growth in government spending - a feat never delivered by the Howard Government in 12 Budgets. Net government debt will likely be revised up by about 0.5% of GDP (but still peaking below 8% of GDP). The economic forecasts will be broadly the same as the RBA with GDP growth around 3.25% in 2011-12 and 2012-13, with the unemployment rate forecast to rise to 5.5%.

One interesting issue might be the Treasury forecast for inflation. The RBA remain of the view that the CPI risks remain tilted to the high side. Treasury may well forecast a 2% inflation rate for the year to June 2012 and be around 0.5% below the RBA forecast for the period beyond. I suppose this is fair enough - the latest RBA forecasts would not have factored in the fiscal action we will see today- Treasury numbers obviously would.