The Treasurer and the Minister for finance announced the final budget outcome.
It is well down from what was announced at budget time and when PEFO came out.
The main reason but not the only reasons is that commodity prices ( mainly iron ore) are way higher than forecast in the budget. It appears few journalists realise finance insists on iron ore prices so low that there will almost always be an upgrade to budget outcomes.
The improvement has been all cyclical. There has been no structural improvement. This can be seen by the fact that Australia is at full employment and strong commodity prices are leading to large tax increases ( something that Wayne Swan never saw).
Herein lies the problem for the ALP. Their child care policy will lead to a deterioration on the structural deficit so they have to cut in other areas quite a bit to ensure budget repair is on course.
We shall see next month whether they have done this. They do have a problem. Too little reduction in the structural deficit will lead to higher interest rates. too much reduction could lead to a recession given interest rates are rising as well.
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