As it spells out in the budget papers each year, Treasury forecasts for only two years. Beyond that, it issues “projections”, which are based on the assumption that everything is going to be absolutely hunky-dory for the Australian economy as all excess capacity is absorbed over five years. You make that assumption and no wonder we’re always going to turn the debt corner in a couple of years, as the accompanying CBA graph shows. Credit:CBA And we might well be entering a Goldilocks period – but the weakness of making that assumption is why all the budget forecasts this decade of net debt reducing as a percentage of GDP have proved false. And within the immediate 18 months that are being forecast, Treasury is still making the rather brave prediction that the wages index will rise by 2.75 per cent next financial year before “assuming” a jump to 3.25 and 3.5 per cent in the two years thereafter while the unemployment rate remains at 5.25 per cent for the next three years.

Meanwhile, in the real world, Greater Sydney (the majority of NSW employment) has had a sub-5 per cent unemployment rate for eight months and just 3.9 per cent in October, but the latest NSW wage index growth is 2.1 per cent. Maybe the 2017-18 budget will break that seven-year record and net debt will peak at the new forecast of 19.2 per cent of GDP next financial year. Indeed, the economic outlook for global and domestic growth, with accompanying stronger employment eventually trickling into higher wages, is the best we’ve had since the GFC. But since Morrison suddenly seems to like throwing around the gross debt figure to be able to claim that hefty-sounding $23 billion reduction, it’s worth taking a close look at this graph from the MYEFO papers. Credit:MYEFO It’s still debt – with the attendant interest bill – rising out beyond where the eye only dreams to see. And the reduced peak net debt forecast of 19.2 per cent of GDP next year remains within a bee’s appendage of double the 10 per cent that used to have shadow treasurer Hockey claiming “budget crisis”. So it goes.

That all said, the MYEFO figures contain nothing to scare the business horses, at least beyond the business of universities, and add to the growing picture of broad economic health. But where the broad slight-but-steady fiscal improvement story gets wobbly is the idea of the small improvements being enough to fund election personal income tax cuts. Loading Replay Replay video Play video Play video The AFR is reporting that MYEFO’s claim of a $10.2 billion budget surplus in 2020-21 will be enough to cover an income tax cut that year for low-and-middle salary earners. The newspaper's example of dropping the 32.5 cents in the dollar – which applies to earnings between $37,000 and $87,000 – to 30 cents would cost the budget $7.2 billion in 2020-21. However, a moment’s thought also means there’s even less effort to make any dint in that steadily rising debt.

The bottom line is the government telling a story of an economy that will be growing nicely above trend for the next three years – 3 per cent real GDP growth compared with trend growth of 2.75 per cent – with wage price index growth of 3.5 per cent in 2020-21 and decent business investment as well. Yet it’s declared an intention to deliver the fiscal stimulus of income tax cuts rather than take the opportunity of an above-trend-and-rising economy to actually start reducing debt. And still hanging in there is the policy and multibillion-dollar cost of a 25 per cent corporate tax rate for all, with foreign multinationals the main winners. But there’s no sign of anything like genuine tax reform aimed at delivering a more efficient and smarter system that would help underpin longer-term growth, rather than an election sugar-hit for individuals and genuflection to corporate trickle-down economics based on dubious modelling. The good news is that the country looks like muddling through well enough for the next few years without federal policy consistency. There’s every reason to believe our record 26 years without a recession will stretch to 30, massive foreign shocks notwithstanding. Beyond that – and the next election – nobody seems to much care.