2002-03 BUDGET PAPER No. 1

BUDGET STRATEGY
AND OUTLOOK
2002-03

CIRCULATED BY
THE HONOURABLE PETER COSTELLO, M.P.,
TREASURER OF THE COMMONWEALTH OF AUSTRALIA, AND
SENATOR THE HONOURABLE NICK MINCHIN,
MINISTER FOR FINANCE AND ADMINISTRATION,
FOR THE INFORMATION OF HONOURABLE MEMBERS
ON THE OCCASION OF THE BUDGET 2002‑03
14 MAY 2002

 Commonwealth of Australia 2002
ISBN 0 642 74105 0
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Guide to the 2002‑03 Budget Papers
Budget Paper No. 1
Budget Strategy and Outlook 2002-03
Budget Paper No. 1 is comprised of 13 Statements.		Statement 7
•	Details of the Commonwealth’s budget funding programme.
•	Debt issue and conversion programmes.	
			
Statement 1
•	Overview of budget and economic forecasts.
•	Discussion of the Government’s medium‑term fiscal strategy.
•	The Government’s key Budget priorities.		Statement 8
•	Trends in the finances of the Commonwealth, State and Local levels of government.
•	Size and structure of the Australian public sector.	
			
Statement 2
•	Changes to the budget estimates since the 2001‑02 Mid‑Year Economic and Fiscal Outlook (MYEFO).
•	Summary of revenue, expenses, net debt and net worth estimates.
•	Budget financial statements.		Statement 9
•	Analysis of the sensitivity of the budget estimates to changes in key economic parameters.
•	Statement of financial risks.	
			
Statement 3
•	Economic developments since MYEFO.
•	The outlook for the domestic and international economies.
•	Revised economic parameter forecasts.		Statement 10
•	Discussion of budget accounting standards.
•	Explanation of major budget aggregates and concepts.	
			
Statement 4
•	An improving and less volatile terms of trade.
•	History of Australia’s terms of trade over the 20th century.
•	Key drivers of the terms of trade, including the international experience.
•	Implications for the current account deficit.		Statement 11
•	Government Finance Statistics financial statements for Commonwealth government sectors.

Statement 5
•	Developments in taxation and non‑taxation revenue since MYEFO.
•	Forward estimates of revenue.
•	Summary of revenue policy measures.
•	Revenue statistics.		Statement 12
•	Australian Accounting Standard financial statements for the Commonwealth general government sector.
•	Notes to the accounting standard financial statements.
•	Additional Commonwealth Government agency statistics.	
			
Statement 6
•	Developments in expenses and net capital investment since MYEFO.
•	Forward estimates of expenses and net capital investment, presented by government function.
•	Summary of expenses and net capital investment policy decisions.
•	Expenses statistics.		Statement 13
Historical data for the Commonwealth’s key fiscal aggregates.	

Guide to the 2002-03 Budget Papers
Budget Paper No. 2
Budget Measures
Provides a comprehensive statement on the budget expense, revenue and  capital measures in the 2002‑03 Budget.		Budget Paper No. 3
Federal Financial Relations
Provides information on the Commonwealth’s financial relations with the State, Territory and Local Governments.	
			
Budget Paper No. 4
Agency Resourcing
Contains information on resourcing for Commonwealth agencies (including the Appropriation Bills Nos. 1 and 2 and the Appropriation (Parliamentary Departments) 
Bill No.1).		Budget Paper No. 5
Intergenerational Report
An assessment of the long-term sustainability of government finances over the next 40 years.	
			
Budget Speech
A transcript of the Treasurer’s budget speech.		Budget Overview
An overview of the 2002‑03 Budget, providing summary information on the Government’s:
•	current and forecast budget position;
•	economic forecasts; and
•	budget priorities and strategy.	
			
Budget Related Papers
Portfolio Budget Statements
Detailed information on the expected financial position of each Commonwealth government agency.		Intergenerational Report In brief
An overview of the Intergenerational Report.	
			
Internet
The Commonwealth budget papers and budget related information are available on the central Budget website at:  www.budget.gov.au	

Notes
(a)	The following definitions are used in this Budget Paper:
•	‘real’ means adjusted for the effect of inflation;
•	real growth in expenses is measured by the non‑farm Gross Domestic Product deflator;
•	Budget year refers to 2002‑03, while the forward years refer to 2003‑04, 2004‑05 and 2005‑06; and
•	one billion is equal to one thousand million.
(b)	Figures in tables and generally in the text have been rounded. Discrepancies in tables between totals and sums of components are due to rounding:
•	estimates under $100,000 are rounded to the nearest thousand;
•	estimates $100,000 and over are generally rounded to the nearest tenth of a million;
•	estimates midway between rounding points are rounded up; and
•	the percentage changes in statistical tables are calculated using unrounded data.
(c)	For the budget balance, a negative sign indicates a deficit while no sign indicates a surplus. 
(d)	The following notations are used:
NEC/nec	not elsewhere classified
AEST	Australian Eastern Standard Time
-	nil
..	not zero, but rounded to zero
na	not available
nfp	not for publication
$m	$ million

(e)	References to the ‘States’ or ‘each State’ include the Territories, because from 1993‑94 onwards, general purpose funding has been on the same basis for all jurisdictions. The Australian Capital Territory and the Northern Territory are referred to as ‘the Territories’. The following abbreviations are used for the names of the States, where appropriate:
NSW	New South Wales
VIC/Vic	Victoria
QLD/Qld	Queensland
WA	Western Australia
SA	South Australia
TAS/Tas	Tasmania
ACT	Australian Capital Territory
NT	Northern Territory
Budget Strategy and Outlook 2002‑03 is one of a series of Budget Papers, the purpose of which is to provide information supplementary to that in the Budget Speech. A guide to the series is printed on pages iii and iv of this Paper.

Contents
Statement 1:  Fiscal Strategy and Budget Priorities
Part I:  Overview	1-3
Part II:  Fiscal strategy	1-7
Part III:  Budget priorities	1-14
Statement 2:  Fiscal Outlook
Budget aggregates	2-3
Variations to the fiscal balance estimates	2-4
Net debt and net worth	2-9
Cash flows	2-12
Appendix A:  External reporting standards	2-15
Appendix B:  Budget financial statements	2-16
Statement 3:  Economic Outlook
Part I:  Overview	3-3
Part II:  The outlook for the international economy	3-7
Part III:  The outlook for the domestic economy	3-11
Part IV:  Uncertainties	3-33
Statement 4:  Australia’s Terms of Trade – Stronger and Less Volatile
Part I:  Introduction	4-3
Part II:  Terms of trade movements —  causes and effects	4-5
Part III:  History of the terms of trade	4-9
Part IV:  Drivers of the terms of trade	4-12
Part V:  Conclusions and policy implications	4-29
Statement 5:  Revenue
Part I:  Overview	5-3
Part II:  Estimates of revenue	5-9
Appendix A:  Changes in revenue since MYEFO	5-23
Appendix B:  Forward estimates of revenue	5-25
Appendix C:  Revenue measures	5-27
Appendix D:  Tax expenditures	5-31
Appendix E:  Cash revenue statistics and history	5-33
Statement 6:  Expenses and Net Capital Investment
Introduction	6-3
Part I:  General government expenses	6-3
Part II:  General government net capital investment	6-63

Statement 6:  Expenses and Net Capital Investment (continued)
Appendix A:  Expense measures	6-68
Appendix B:  Net capital investment measures	6-85
Appendix C:  Expenses statistics	6-89
Statement 7:  Budget Funding
Net debt	7-3
Gross debt	7-3
Debt issue and conversion	7-4
Statement 8:  Trends in Public Sector Finances
Part I:  Overview	8-3
Part II:  Fiscal balance	8-5
Part III:  Cash surplus	8-8
Part IV:  Net debt and net worth	8-14
Appendix A:  Size and structure of the public sector	8-19
Appendix B:  Non‑financial public sector — supplementary cash tables	8-20
Statement 9:  Risks to the Budget
Part I:  Statement of risks	9-3
Part II:  Sensitivity of fiscal aggregates to economic developments	9-24
Statement 10:  External Reporting Standards and Budget Concepts
External reporting standards	10-3
Accrual GFS framework	10-3
Australian Accounting Standard No. 31 (AAS31) reporting framework	10-11
Reconciliation of GFS and AAS31 aggregates	10-11
Statement 11:  Government Finance Statistics Statements
Government finance statistics statements	11-5
Statement 12:  Australian Accounting Standard No. 31 
Financial Statements
AAS31 financial statements	12-4
Notes to the AAS31 financial statements	12-7
Appendix A:  Additional agency statistics	12-14
Estimates of general government sector agency capital use charge and dividend payments	12-30
Statement 13:  Historical Commonwealth data
Historical Commonwealth data	13-3