Australian top economic forecasters expect living standards to fall in the year ahead as economic growth weakens and the budget deficit blows out.
The findings in the mid-year Scope economic survey are revealed in today's BusinessDay. The survey is Australia's longest running, aggregating the views of financial market economists, academics and industry researchers. It includes the chief economists of each of the four big banks.
The panel expects nominal GDP, the measure that drives tax revenue, to grow by just 3 per cent in 2016-17 instead of the 4.25 per cent forecast in the budget.
It expects non-mining investment, forecast in the budget to jump 3.5 per cent, to stay close to flat, growing by just 0.1 per cent.
The budget deficit is expected to climb above $40 billion rather than shrink to $37 billion as forecast by the government in May. Company tax revenue is on track to record its worst year since 2011-12.
The panel takes issue with the government's claim that it can afford to cut the company tax rate, saying that the ongoing cost will place a strain on the budget.
"Given the medium-term fiscal problem, the company tax cuts seem like a luxury that we can't afford at present," said BT Financial Group chief economist Chris Caton. A supporter of a cut, Monash University professor Jakob Madsen, said if it was enacted it should not apply to mining companies, property developers and banks because they would "just pocket the extra profit without creating jobs".
The panel finds the best measure of living standards, real net national disposable income per capita, will slip for the third successive year, sliding a further 1.7 per cent to be down 5.6 per cent since December 2013 and 8 per cent since the peak of the mining boom in September 2011.
Unemployment will stay steady at 5.7 per cent as enough jobs are created to absorb the new entrants to the labour force but to do no more.
The Sydney and Melbourne housing booms will slow as Sydney and Melbourne home prices climb by a more sedate 3.6 and 4.2 per cent.
The panel is broadly of the view that Labor's moves against negative gearing and capital gains tax concessions would result in lower house prices than otherwise, but regards that as a good thing.
"Halving the capital gains discount on housing investment returns is overdue and has arguably been one of the worst policies enacted under Howard-Costello," said BIS Shrapnel head of economics Richard Robinson. "Some restriction on the excesses of negative gearing is warranted, but it should be brought in over five-10 years, in order to cause less disruption."
The panel expects the iron ore price to slide from $US60 a tonne at the time of the May budget to $US48.
