Part 1: Overview
Introduction
The Government is returning the budget to surplus in 2012‑13, notwithstanding a weaker global economy that has weighed heavily on tax receipts. Returning to surplus is appropriate given current economic conditions, with the economy forecast to grow around trend, the unemployment rate forecast to remain low and commodity prices remaining high by historical standards. Returning to surplus provides ongoing scope for monetary policy to respond to economic developments and underpins confidence in Australia's public finances at a time of global economic uncertainty.
Global growth is expected to be lower than forecast at Budget, as the recession in the euro area and the subdued recovery in the United States bear on the growth of key trading partners in the emerging market economies of Asia. While still robust, China's economic growth has moderated more than expected at the 2012‑13 Budget and by most official forecasters, reflecting weaker external demand and a deliberate policy‑induced slowing in domestic activity. The euro area debt crisis and the impending legislated fiscal contraction in the United States (the 'fiscal cliff') are adding to global economic uncertainty and this is likely to continue into 2013.
Despite a weaker global outlook, the fundamentals of the Australian economy remain strong and the outlook remains positive. The Australian economy continues to outperform every major advanced economy. While some sectors face challenging conditions, the economy is expected to grow around trend, underpinned by a surge in resources investment, strong growth in export volumes and solid growth in household consumption.
While the outlook for the Australian economy is positive, external factors are weighing heavily on parts of the economy and tax receipts. The moderation in world Gross Domestic Product (GDP) growth has contributed to a greater‑than‑expected easing in global prices of Australia's non‑rural bulk commodities. This has been the primary driver of a substantial write‑down in total tax receipts of over $20 billion over the forward estimates.
To return the budget to surplus in 2012‑13 and beyond, the Government has made substantial targeted savings, ensuring that Australia's public finances remain strong. These decisions return the budget to surplus ahead of any major advanced economy, contribute to growing surpluses and improve the long‑term sustainability of the budget.
The Government has continued its commitment over the past few years to find the savings to fund new priorities and maintain Australia's strong fiscal position. This has been achieved in the face of a substantial write‑down in tax receipts of almost $160 billion over the five years since the beginning of the Global Financial Crisis (GFC). Since mid‑2009 the Government has more than offset all new spending. Savings in this Mid‑Year Economic and Fiscal Outlook (MYEFO) total $16.4 billion, and have funded initiatives such as dental reform, and will help make room for the delivery of new priorities in future years.
Maintaining Australia's strong public finances means getting the long‑term settings right, so that the Australian community can take advantage of the significant opportunities of the Asian century from a position of strength. The Government has made clear it will pursue significant new priorities, including school funding reform and a National Disability Insurance Scheme (NDIS). The Government continues to make enduring savings that will help make room for these national priorities in the medium term. The Government will identify further savings to help fund these priorities.
The underlying cash surplus is expected to be $1.1 billion (0.1 per cent of GDP) in 2012‑13, growing to $2.2 billion (0.1 per cent of GDP) in 2013‑14. Table 1.1 presents the fiscal and underlying cash balances for 2012‑13 to 2015‑16.
Returning to surplus in 2012‑13 is appropriate given current economic conditions, reflecting a targeted approach to savings that minimises the impacts of the fiscal consolidation on the economy, and on vulnerable people. The Government will continue to balance these considerations, and will continue to ensure its approach to savings is appropriate for the economic conditions and is fair on the community.
| Estimates | |||||
|---|---|---|---|---|---|
| 2012-13 | 2013-14 | ||||
| Budget | MYEFO | Budget | MYEFO | ||
| Underlying cash balance($b)(a) | 1.5 | 1.1 | 2.0 | 2.2 | |
| Per cent of GDP | 0.1 | 0.1 | 0.1 | 0.1 | |
| Fiscal balance($b) | 2.5 | 1.2 | 2.6 | 4.3 | |
| Per cent of GDP | 0.2 | 0.1 | 0.2 | 0.3 | |
| Projections | |||||
| 2014-15 | 2015-16 | ||||
| Budget | MYEFO | Budget | MYEFO | ||
| Underlying cash balance($b)(a) | 5.3 | 3.3 | 7.5 | 6.4 | |
| Per cent of GDP | 0.3 | 0.2 | 0.4 | 0.4 | |
| Fiscal balance($b) | 7.0 | 6.9 | 9.5 | 9.8 | |
| Per cent of GDP | 0.4 | 0.4 | 0.5 | 0.5 | |
(a) MYEFO figures report net Future Fund earnings, whereas Budget figures report gross Future Fund earnings. This is further explained in Appendix B.
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