Economists believe the central bank will be under pressure to cut the cash rate again to offset the impact of further budget savings by a federal government determined to achieve a surplus.
Treasurer Wayne Swan handed down the final budget outcome for 2011/12 today, reporting a modest improvement from the deficit figure forecast four months ago which masked a hefty drop in company tax receipts.
"We remain committed to delivering a surplus as Australia’s best defence at a time of ongoing global turbulence,” Mr Swan told a joint media conference with Finance Minister Penny Wong in Canberra.
He said commodity prices were “substantially lower” than what had been factored into the 2012/13 budget forecast.
"This will hit government revenues significantly, which does make it harder to deliver a budget surplus. It does mean we’ll have to find more savings,” he said.
The government is forecasting a $1.5 billion surplus in 2012/13, which would be the first surplus since 2007/08.
RBC Capital Markets strategist Michael Turner said the treasurer’s warning of new savings measures kept the onus on the Reserve Bank of Australia (RBA) to lower the cash rate and would do little to dampen speculation of a cut in October.
"With global growth slowing and the domestic economy likely to lose momentum into year-end, the onus will be squarely on monetary policy to provide some support for domestic demand,” Mr Turner said.
The final budget outcome for the financial year ended June 30, 2012, was a $43.7 billion deficit and a modest $661 million improvement on the $44.4 billion shortfall predicted in the May budget.
Mr Swan said that at three per cent of gross domestic product (GDP), the 2011/12 deficit was less than half of the average deficit recorded for major advanced economies.
"Australia’s public finances remain among the strongest in the world, in large part due to the decisive actions taken to avoid recession and the strict fiscal discipline delivered by the government,” Mr Swan said.
But shadow treasurer Joe Hockey said the treasurer was benchmarking Australia against the world’s worst performing countries, instead of the best performers.
"If Australia were a company, today you would have sacked the board of directors for their incompetence,” Mr Hockey told reporters in Sydney.
He said the 2011/12 deficit was nearly double the forecast of a $22.6 billion shortfall made in May 2011, the third biggest in dollar terms in Australia’s history, and came despite the economy growing above trend.
"There is no room for self-congratulation,” Mr Hockey said.
Total taxation receipts for 2011/12 were $290 million higher than forecast in May, reflecting solid wages and employment growth, but company tax receipts fell $876 million due largely to lower corporate profits.
Government cash payments were $305 million lower than estimated in the May budget due to a range of “demand-driven and grant-based” programs.
Net government debt for 2011/12 at $147.3 billion represented 10 per cent of GDP, slightly larger the 9.6 per cent of GDP estimated in May.
This was the result of falling interest rates lifting the market value of already issued government bonds, though fewer were issued than earlier forecast