NSW budget tracking better than expected, in line with our forecasts
Coolabah Capital Investments (CCI) has a contrarian forecast that the state government budgets are going to track better than the states (and the market) expect. We also project similarly positive dynamics at the Commonwealth government's budget level.
CCI’s analysis of monthly financial data shows that the New South Wales budget continues to outperform the state government’s forecast for 2020-21 as a whole, although there will likely be a temporary setback from the recent virus outbreak and the government’s fiscal stimulus could see some deterioration into Q1.
With almost half the financial year over, the seasonally adjusted budget is tracking about $5bn better than implied by a simple interpolation of the government’s forecast of $28.5bn for 2020-21 (or about $3bn better using unadjusted data). In particular:
- Updating CCI’s monthly/quarterly database of state budgets, the seasonally adjusted general government deficit has averaged $1.4bn per month from July to November (in unadjusted terms, the deficit averaged $1.8bn per month over this period). This is better than the average monthly run-rate of $2.4bn implied by the budget’s financial-year forecast for 2020-21, with revenue marginally behind the government’s forecast profile and payments noticeably lower.
- Total revenue has averaged $7.0bn per month in 2020-21 to date, almost the same as the $7.1bn monthly average implied by the budget financial-year forecast. Grants, subsidies and other non-tax revenue are close to the annual budget forecast, although taxes have slipped a little after a strong recovery where residential stamp duty has reached the highest level since 2018.
- Total payments have averaged $8.4bn per month in the financial year to date, less than the $9.5bn monthly average implied by the 2020-21 budget forecast. The wages bill and other current payments are tracking close to the annual budget estimate, while capex and other payments are running below the implied budget profile.
- The better result in 2020-21 suggests that the general government budget deficit will come in below the state government’s November forecast, with a similar improvement in the financing requirement for the non-financial public sector. In the near term, though, the budget may deteriorate given further fiscal stimulus, while high-frequency economic indicators point to a temporary setback from the recent coronavirus outbreak.
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Based in Sydney, Kieran Davies joined Coolabah Capital in 2020, an asset manager than runs over $7 billion in fixed-income strategies, and is responsible for macroeconomic research and investment strategy, contributing to the investment decisions...