PART IV: MAJOR VARIATIONS TO THE FORWARD ESTIMATES

MEASURES

By adopting an approach to expenditure restraint which places emphasis on the reassessment of existing spending priorities and improving the efficiency and effectiveness of the public sector, the Government has been able to substantially reduce expenditures while introducing new policy spending in a number of high priority areas, including to meet its election commitments.

Outlays — Spending and Savings Measures

The Government has introduced election spending commitments (costing $0.6 billion in 1996-97 and $1.4 billion in 1997-98) as well as providing additional funding of $0.9 billion in 1996-97 and $0.6 billion in 1997-98 in other high priority spending areas.

The Government has also introduced a range of savings measures which will reduce outlays excluding net advances by $4.4 billion in 1996-97 and $7.2 billion in 1997-98. These savings measures are sufficient to fund the new policy spending of the Government as well as contributing the bulk of the fiscal consolidation. Table 4 presents the major spending and savings measures and their impact on Commonwealth outlays. Further details on outlays spending and savings measures are contained in Statement 3.

Provision has been made in the forward estimates for outlays and revenue effects that would have arisen from the National Heritage Trust Fund, contingent upon the partial privatisation of Telstra. However, no specific outlays or revenue measures have been identified in this Budget.

Revenue Measures

A range of revenue measures will increase revenue by $1.3 billion in 1996-97 and $2.5 billion in 1997-98. These measures are focussed on addressing anomalies within the existing tax system and removing opportunities for tax evasion and avoidance. The Government has also moved to reduce the revenue loss associated with some tax expenditures (including the generous taxation treatment of superannuation and research and development expenditure). Tax expenditures should be viewed as providing assistance similar to that provided through the outlays side of the budget. Further discussion of tax expenditures is contained in Appendix B of Statement 4. New tax relief measures in areas such as family assistance and health will be introduced costing $0.4 billion in 1996-97 and $0.6 billion in 1997-98. In addition a proportion of the tax benefits from the family tax initiative are delivered through outlays as set out in Table 4 (see footnote (b)).

Table 5 presents the major revenue initiatives and their impact on total revenue; further details are contained in Statement 4.

Table 4: Major Spending and Savings Measures

(a) Includes public debtinterest savings from measures.
(b) The Family Tax Initiative is intended to reduce the burden of taxation on families, particularly those with young children. However, for practical reasons it is necessary to deliver the benefits of this tax reduction to certain lower income families through the Department of Social Security.

Table 5: Major Revenue Measures

(a) Partly delivered through outlays. See footnote (b) on Table 4.
(b) Additional running cost resources of $9.7 million in 1996-97 and $9.5 million in 1997-98 have been provided to the Australian Taxation Office for the development of administrative and legislative responses on a progressive and ongoing basis, to address aggressive tax planning and minimisation arrangements used by some high wealth individuals. The annual revenue at risk from these arrangements has been estimated by the Australian Taxation Office and the Treasury at $800 million, but until specific measures have been developed, reliable revenue estimates cannot be provided for 1998-99 and 1999-2000.
(c) This amount reflects the net effect of refunds and collections after 30 June 1996, with respect to the levy increase for the 1996-97 income year.

ECONOMIC PARAMETERS

Table 6 presents the major economic parameters assumed in preparing the budget estimates presented in the Budget documents. They comprise economic forecasts for 1996-97 (discussed in detail in Part I of Statement 2) and projections for the period to 1999-2000 to represent a scenario over that period.

Table 6: Major Economic Parameters (percentage change from previous year)

(a) Civilian wage and salary earners (National Accounts basis).
(b) National Accounts basis, including superannuation. Includes voluntary redundancy and superannuation payments to Commonwealth public servants which boost wage growth slightly in 1996-97. Excluding this effect, wage growth would be around 4 ½ per cent in 1996-97.
(c) Headline consumer price index.

Sensitivity of the Forward Estimates to Changes in Economic Conditions

The outlays and revenue estimates in the 1996-97 Budget are consistent with the economic forecasts and projections in Table 6. Variations in economic outcomes from this scenario will have implications for the outlays and revenue estimates. Details of the estimated sensitivity of the outlays and revenue estimates to changes to the economic parameters are presented in Statements 3 and 4 respectively.