MYEFO – Hiding a larger structural fiscal hole

The decision by the Treasurer to use the Mid-Year Economic and Fiscal Outlook (MYEFO) to draw attention to the deterioration in the fiscal position triggered by the weak economic backdrop is one that could come back to haunt him. While it conveniently gets a lot of the bad news out of the way before an election year, it ignores the new structural hole in the budget deficit worth $40bn (2% of GDP) that has suddenly appeared. This leaves Australia’s AAA credit rating looking more vulnerable and means that the government will have to work even harder to sort out the fiscal situation.