Part 1: Overview (Continued)
Returning the budget to surplus
The Government is returning the budget to surplus in 2012‑13 even though the recent fall in global commodity prices and the weaker global economic outlook have made the task more challenging.
While iron ore prices have recently regained some ground, global non‑rural commodity prices are expected to remain below the levels forecast at Budget. Largely because of lower commodity prices, nominal GDP growth in 2012‑13 is forecast to be lower than at Budget and this is expected to result in slower growth in tax receipts. In particular, company tax and resource rent taxes have been revised down since the Budget. This results in tax receipts being over $20 billion lower over the forward estimates.
Notwithstanding the substantial write‑down in total tax receipts, the Government will return the budget to surplus in 2012‑13, with small but growing surpluses over the forward estimates. Returning to surplus in 2012‑13 remains appropriate given current conditions, reflecting a targeted approach to savings that minimises the overall impact of the Government's fiscal consolidation on the economy. The economy is forecast to grow around trend, the unemployment rate is forecast to remain low and commodity prices remain high by historical standards.
In normal circumstances, with fiscal policy focussed on the medium term, monetary policy should play the primary role in managing demand to keep the economy growing at close to capacity consistent with achieving the medium‑term inflation target. The Government's fiscal consolidation continues to provide scope for monetary policy to respond to economic developments, as needed.
With global uncertainty likely to persist well into 2013, the Government's ongoing commitment to fiscal discipline will ensure that Australia's public finances remain strong, underpinning confidence in the strength of the Australian economy. The strength of Australia's public finances is a key reason behind Australia being one of only seven countries to have a AAA credit rating with a stable outlook from all three major ratings agencies. This, along with Australia's positive economic outlook, has made Commonwealth Government Securities relatively attractive for investors, which has contributed to interest rates on these securities recently falling to historic lows. Keeping Australia's public finances strong will also support the Government's capacity to respond to unanticipated events in uncertain global economic times.
Targeted and responsible savings
The Government has announced that it will pursue significant long‑term reforms to schools and disabilities. The Government will fundamentally reform the model for school funding, with a new system to be phased in over six years from calendar year 2014. Launch sites for the NDIS will commence from July 2013, the first step towards a better deal for Australians with a disability.
In each of these areas additional resources will be required from the Commonwealth Government and State and Territory Governments. Detailed negotiations are still being progressed in both of these areas.
Funding these new important priorities will require tough budget choices. The Government will continue to build on its record of delivering enduring savings that improve the budget position over the long term in some areas in order to free up the resources necessary to deliver key reforms like reforming the model for school funding and improving support for those with disabilities.
The Government has designed a package of savings worth $16.4 billion in 2012‑13 and over the forward estimates. These measures have been carefully selected to minimise the impact on the economy and on vulnerable people, while still maintaining strong public finances. These savings spread the work of returning to surplus in a fair way, taking into account the ability to pay, and targeting spending to the areas of highest need. These savings are necessary to maintain the budget position, and continue the progress in strengthening the medium‑term fiscal position.
Delivering on key priorities while maintaining strong public finances
From 1 January 2014, under the Dental Health Reform Package more than 3 million children and teenagers will be eligible for government‑subsidised dental care, as well as more than one million low‑income adults and Australians in rural and remote areas. These new programs will replace the Medicare Teen Dental Plan and the poorly targeted Chronic Disease Dental Scheme.
The cost of this important dental health reform will be offset by savings including from changes to private health insurance. The Private Health Insurance rebate will be adjusted to ensure that it grows at a sustainable rate. The Government's contribution to private health insurance will be calculated using commercial premiums as at 1 April 2013 and then indexed annually by the lesser of CPI or the actual increase in commercial premiums. This will be used to determine an individual's private health insurance rebate. These changes will reduce the growth of the rebate, which has been projected to be one of the fastest growing components of Commonwealth health expenditure over the medium term.
In conjunction with this measure, the Government will streamline arrangements for the 2013 premium setting round for private health insurance. The Government will also undertake discussions with industry and consumer groups on options for further simplification of premium setting which will drive competition and continue to deliver strong consumer protection from 2014.
When fully implemented, the Government's response to the Expert Panel on Asylum Seekers will deter people from making dangerous boat voyages to Australia, including by expanding asylum seekers' options for regular migration to Australia. The response will have initial costs, but will save lives. Arrival numbers to date since the 2012‑13 Budget have been higher than estimated, and the additional costs of these arrivals have been provisioned in this MYEFO. Arrival numbers are expected to decline as the new policy is fully implemented, reducing the pressure on the budget from irregular maritime arrivals.
The Government is making changes to the Australian Apprenticeships Incentives Program (AAIP) that will better target spending towards areas of high skill need. Changes to the standard incentive payments will ensure that the focus of the AAIP is on encouraging employers to take on apprentices in high skill need areas and train them through to completion. These changes will ensure the $3.3 billion funding over the forward estimates provided through the AAIP is best directed to help address skill shortages and does not duplicate other Government funded initiatives including, for example, the National Workforce Development Funding and the National Partnership Agreement on Skills Reform.
From 1 July 2013, the Government will reduce the Baby Bonus payment for second and subsequent children to $3,000. This will help ensure the sustainability of the family payment system and better reflect the actual up‑front costs of a child. Families will continue to benefit from the Government's wide ranging reforms for families, including Paid Parental Leave, the increase in the Child Care Rebate from 30 per cent to 50 per cent of out‑of‑pocket child care expenses, the SchoolKids bonus, and Family Tax Benefit Part A and B.
The Government's higher education reforms in response to the Bradley Review are now fully implemented and universities are embracing the new demand driven funding system, driving substantially higher costs in higher education and student income support. An additional $5.3 billion in funding from 2010 to 2015 for universities will be provided to support the growth in student enrolments resulting from the Government's reforms. This funding is supporting the additional 150,000 university students that are enrolled in university in 2012 compared to 2007 (a 27.8 per cent increase). The increase in enrolments will see efficiencies being realised in the delivery of courses, particularly from economies of scale. Longer‑term growth in some research funding to universities will be temporarily slowed to ensure that research funding to universities remains sustainable. Additionally, changes to tertiary education funding and student assistance are being made to ensure that the system operates effectively. The Government will continue to consider how to ensure that the growth in university expenditure will remain sustainable in the future.
Company tax collection arrangements will be reformed to introduce monthly Pay As You Go for large companies. This will ensure that instalments are more closely aligned to fluctuations in these businesses' income. It will better align company tax payments with goods and services tax payments for affected businesses, and will ensure better accounting for company tax collected in a financial year. Many other countries already have monthly instalments, including Canada, Sweden, Finland and the Netherlands. The Government will consult with the business community on the best way to implement this change, ahead of its phased commencement from 1 January 2014.
The ongoing process of improvements to ensure the integrity and fairness of the tax system will be enhanced. In‑house fringe benefits provided through salary sacrifice arrangements will no longer be given concessional tax treatment, improving fairness for employees of firms who do not offer these arrangements. The Australian Taxation Office (ATO) will also receive additional funding for compliance activities, including specific targeting of under‑reporting of cash transactions and tax avoidance and evasion schemes.
The Government will make changes to the operation of lost superannuation and unclaimed bank account and life insurance provisions. The changes will increase the number of lost superannuation accounts transferred to the ATO, who will be given additional funding to implement this measure and to use their data matching resources to match lost accounts with active accounts. For the first time, the Government will pay interest at the rate of CPI inflation on all unclaimed superannuation monies reclaimed from the ATO and unclaimed monies reclaimed from the Australian Securities and Investments Commission from 1 July 2013, which will preserve their value over time.
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