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Part 3: Fiscal strategy and outlook (Continued)

Fiscal outlook (continued)

Fiscal balance estimates

The fiscal balance is expected to be in surplus by $1.2 billion in 2012‑13, a deterioration of $1.3 billion from the expectation in the 2012‑13 Budget.

Table 3.10 provides a reconciliation of fiscal balance estimates, including the impact of policy decisions and parameter and other variations on revenue, expense and net capital investment.

Table 3.10: Reconciliation of general government sector fiscal balance estimates

	Estimates			Projections
	2012-13 $m	2013-14 $m		2014-15 $m	2015-16 $m
2012-13 Budget fiscal balance	2,500	2,646		7,020	9,457
Per cent of GDP	0.2	0.2		0.4	0.5
Changes from 2012-13 Budget to 2012-13 MYEFO
Effect of policy decisions(a)(b)
Revenue	839	6,486		2,918	2,499
Expenses	215	530		596	223
Net capital investment	238	104		-120	-149
Total policy decisions impact on fiscal balance	386	5,852		2,442	2,424
Effect of parameter and other variations(a)
Revenue	-3,171	-5,522		-5,877	-5,620
Expenses	-1,439	-1,179		-3,340	-3,456
Net capital investment	-53	-121		2	-46
Total parameter and other variations impact on fiscal balance	-1,679	-4,222		-2,539	-2,118
2012-13 MYEFO fiscal balance	1,207	4,275		6,923	9,762
Per cent of GDP	0.1	0.3		0.4	0.5

(a) A positive number for revenue indicates an increase in the fiscal balance, while a positive number for expenses and net capital investment indicates a decrease in the fiscal balance.

(b) Excludes secondary impacts on public debt interest of policy decisions and offsets from the Contingency Reserve for decisions taken.

Revenue estimates

Total revenue has been revised down by $2.3 billion in 2012‑13. While changes in revenue are generally driven by the same factors as receipts, there are differences as not all revenue raised in a given year is actually paid in that year. For example, past tax assessments may be amended as a result of compliance activity or the settlement of legal disputes and taxpayers may accrue new tax debts. These differences exist for most revenue heads, and vary across years.

Movements in non‑taxation revenue that are not matched by an equal movement in non‑taxation receipts include:

• the dividends expected to be received by the Government from the RBA ($500 million) and the Australian Reinsurance Pool Commission ($400 million over four years), which have a significantly different impact on accrual revenue compared to cash receipts. The dividend revenue is recognised when the entitlement to the dividend is established, not when the dividend receipt is received;
• a reduction in the revenue attributable to the Higher Education Loan Program of $348 million in 2012‑13 as a result of revised discount rates used in the valuation of student loans, with no impact on the underlying cash balance. The decrease in revenue is more than offset by a decrease in expenses relating to the revised discount rate; and
• changes to the operation of lost superannuation account provisions where there are differences between the timing of accrual revenue and expenses compared to cash receipts and payments (a difference of $63 million across the forward estimates).

Detailed Australian Government general sector revenue estimates for 2012‑13 and 2013‑14, compared with the estimates published in the 2012‑13 Budget, are provided in Tables 3.11 and 3.12 respectively.

Table 3.11: Australian Government general government sector accrual revenue — 2012-13

	Estimates			Change on Budget
	Budget $m	MYEFO $m		$m	%
Individuals' and other withholding taxes
Gross income tax withholding	151,620	152,590		970	0.6
Gross other individuals	37,670	37,840		170	0.5
less: Refunds	26,240	26,500		260	1.0
Total individuals' and other withholding taxation	163,050	163,930		880	0.5
Fringe benefits tax	3,900	4,040		140	3.6
Company tax	75,032	72,982		-2,050	-2.7
Superannuation funds	8,250	8,250		0	0.0
Resource rent taxes(a)	7,410	5,580		-1,830	-24.7
Income taxation revenue	257,642	254,782		-2,860	-1.1
Sales taxes
Goods and services tax	50,486	50,790		304	0.6
Wine equalisation tax	780	720		-60	-7.7
Luxury car tax	450	450		0	0.0
Total sales taxes	51,716	51,960		244	0.5
Excise duty
Petrol	5,900	6,000		100	1.7
Diesel	8,700	8,700		0	0.0
Beer	2,035	2,070		35	1.7
Tobacco	5,850	5,200		-650	-11.1
Other excisable products	4,400	4,520		120	2.7
Of which: Other excisable beverages(b)	940	930		-10	-1.1
Total excise duty revenue	26,885	26,490		-395	-1.5
Customs duty
Textiles, clothing and footwear	730	700		-30	-4.1
Passenger motor vehicles	940	920		-20	-2.1
Excise-like goods	4,370	4,850		480	11.0
Other imports	1,510	1,540		30	2.0
less: Refunds and drawbacks	180	180		0	0.0
Total customs duty revenue	7,370	7,830		460	6.2
Carbon pricing mechanism	7,690	7,690		-	-
Other indirect taxation
Agricultural levies	440	440		0	0.0
Other taxes	2,883	2,900		17	0.6
Total other indirect taxation revenue	3,323	3,339		17	0.5
Indirect taxation revenue	96,984	97,309		326	0.3
Taxation revenue	354,626	352,092		-2,534	-0.7
Sales of goods and services	8,264	8,594		330	4.0
Interest	5,113	4,465		-648	-12.7
Dividends	2,485	2,479		-6	-0.2
Other non-taxation revenue	5,583	6,109		526	9.4
Non-taxation revenue(c)	21,445	21,647		202	0.9
Total revenue(c)	376,071	373,739		-2,332	-0.6
Memorandum:
Capital gains tax	10,200	8,400		-1,800	-17.6
Medicare levy revenue	9,640	9,700		60	0.6

(a) Resource rent taxes include PRRT and gross revenue from the MRRT.

(b) Other excisable beverages are those not exceeding 10 per cent by volume of alcohol (excluding beer, brandy and wine).

(c) Includes Future Fund earnings.

Table 3.12: Australian Government general government sector accrual revenue — 2013‑14

	Estimates			Change on Budget
	Budget $m	MYEFO $m		$m	%
Individuals' and other withholding taxes
Gross income tax withholding	164,980	165,250		270	0.2
Gross other individuals	40,250	40,080		-170	-0.4
less: Refunds	26,430	26,700		270	1.0
Total individuals' and other withholding taxation	178,800	178,630		-170	-0.1
Fringe benefits tax	4,390	4,530		140	3.2
Company tax	77,901	80,459		2,558	3.3
Superannuation funds	9,220	9,290		70	0.8
Resource rent taxes(a)	8,350	6,560		-1,790	-21.4
Income taxation revenue	278,661	279,469		808	0.3
Sales taxes
Goods and services tax	53,234	53,730		496	0.9
Wine equalisation tax	830	730		-100	-12.0
Luxury car tax	460	460		0	0.0
Total sales taxes	54,524	54,920		396	0.7
Excise duty
Petrol	5,380	5,840		460	8.6
Diesel	9,200	9,120		-80	-0.9
Beer	2,183	2,140		-43	-2.0
Tobacco	5,190	4,710		-480	-9.2
Other excisable products	4,710	4,640		-70	-1.5
Of which: Other excisable beverages(b)	1,030	990		-40	-3.9
Total excise duty revenue	26,663	26,450		-213	-0.8
Customs duty
Textiles, clothing and footwear	785	720		-65	-8.3
Passenger motor vehicles	1,020	960		-60	-5.9
Excise-like goods	5,310	5,850		540	10.2
Other imports	1,635	1,680		45	2.8
less: Refunds and drawbacks	180	180		0	0.0
Total customs duty revenue	8,570	9,030		460	5.4
Carbon pricing mechanism	8,685	8,685		0	0
Other indirect taxation
Agricultural levies	436	436		0	0.0
Other taxes	3,188	3,033		-155	-4.9
Total other indirect taxation revenue	3,625	3,470		-155	-4.3
Indirect taxation revenue	102,067	102,555		488	0.5
Taxation revenue	380,727	382,023		1,296	0.3
Sales of goods and services	8,641	8,791		149	1.7
Interest	5,209	4,628		-580	-11.1
Dividends	1,966	1,950		-16	-0.8
Other non-taxation revenue	5,654	5,769		115	2.0
Non-taxation revenue(c)	21,470	21,138		-332	-1.5
Total revenue(c)	402,197	403,161		964	0.2
Memorandum:
Capital gains tax	12,900	11,000		-1,900	-14.7
Medicare levy revenue	10,250	10,390		140	1.4

(a) Resource rent taxes include PRRT and gross revenue from the MRRT.

(b) Other excisable beverages are those not exceeding 10 per cent by volume of alcohol (excluding beer, brandy and wine).

(c) Includes Future Fund earnings.

Expense and net capital investment

Movements in accrual expenses and net capital investment over the forward estimates are broadly similar to the movements in cash payments. The key exceptions include:

• an increase in accrued superannuation expenses for civilian superannuation schemes of $1.1 billion reflecting differences between the timing of cash payments and accrued expenses;
• a reduction in the expenses attributable to the concessional loans under the Higher Education Loan Program (HELP) of $736 million in 2012‑13 as a result of revised discount rates used in the valuation of student loans, with no impact on the underlying cash balance. This expense reduction is related to the decrease in HELP revenue outlined above; and
• the provision of GST to the States and Territories, reflecting higher than estimated GST entitlements ($440 million) relating to the 2011‑12 financial year. This amount was accrued in 2011‑12 and will be paid in 2012‑13.

Estimates of Australian Government general expenses by function can be found in Attachment C.

Table 3.13 provides a reconciliation of expense estimates.

Table 3.13: Reconciliation of general government sector expense estimates

	Estimates			Projections
	2012-13 $m	2013-14 $m		2014-15 $m	2015-16 $m
2012-13 Budget expenses	376,273	398,503		416,449	439,044
Changes from 2012-13 Budget to 2012-13 MYEFO
Effect of policy decisions(a)	215	530		596	223
Effect of economic parameter variations
Total economic parameter variations	245	576		29	199
Unemployment benefits	-197	186		-59	-67
Prices and wages	391	288		-113	-60
Interest and exchange rates	1	1		1	1
GST payments to the States	50	100		200	325
Public debt interest	0	-313		-377	-527
Program specific parameter variations	1,299	-631		-1,522	-1,742
Other variations	-2,984	-810		-1,470	-1,386
Total variations	-1,224	-649		-2,744	-3,233
2012-13 MYEFO expenses	375,049	397,854		413,704	435,811

(a) Excludes secondary impacts on public debt interest of policy decisions and offsets from the Contingency Reserve for decisions taken.

Table 3.14 provides a reconciliation of the net capital investment estimates.

Table 3.14: Reconciliation of general government sector net capital investment estimates

	Estimates			Projections
	2012-13 $m	2013-14 $m		2014-15 $m	2015-16 $m
2012-13 Budget net capital investment	-2,701	1,048		1,361	1,059
Changes from 2012-13 Budget to 2012-13 MYEFO
Effect of policy decisions(a)	238	104		-120	-149
Effect of parameter and other variations	-53	-121		2	-46
Total variations	185	-17		-118	-194
2012-13 MYEFO net capital investment	-2,517	1,032		1,244	865

(a) Excludes secondary impacts on public debt interest of policy decisions and offsets from the Contingency Reserve for decisions taken.

Net debt, net financial worth and net worth

Net debt for the Australian Government general government sector is expected to be $144.0 billion (or 9.4 per cent of GDP) in 2012‑13, slightly higher than the level expected in the 2012‑13 Budget ($143.3 million or 9.2 per cent of GDP).

The increase in the expected level of net debt since the Budget is primarily driven by an increase in the market value of the stock of Commonwealth Government Securities (CGS) on issue, owing to lower yields (interest rates) than were assumed at the time of the Budget.

The impact on net debt from the increase in the market value of CGS has been partially offset by an increase in the value of some financial assets, including an increase in the value of HELP assets.

Net debt is expected to have peaked, as a percentage of GDP, at 10 per cent in 2011‑12, and is expected to reduce to 7.7 per cent of GDP in 2015‑16. Australia's level of net debt remains low by international standards. Based on the latest IMF forecasts, the average level of net debt for the major advanced economies (G7), measured for all levels of government, was 84.1 per cent of GDP in 2011. The average net debt position of the major advanced economies is projected to peak at 95 per cent of GDP in 2016, almost ten times higher than the expected peak in Australia's net debt.

Net financial worth for the Australia Government general government sector is expected to be ‑$257.9 billion (16.9 per cent of GDP) in 2012‑13, compared to the Budget estimate of ‑$248.6 billion (16.0 per cent of GDP). Net worth for the Australian Government general government sector is expected to be ‑$145.3 billion (9.5 per cent of GDP) in 2012‑13, compared to the Budget estimate of ‑$137.8 billion (8.9 per cent of GDP).

The changes to net debt described above also impact on net financial worth and net worth. Other factors impacting on the value of net financial worth and net worth in 2012‑13 since the Budget include increases in the provisions for military workers compensation and university superannuation as a result of actuarial revaluations.

Table 3.15 provides a summary of Australian Government general government sector net financial worth, net worth, net debt and net interest payments.

Table 3.15: Australian Government general government sector net financial worth, net debt, net interest payments and net worth.

	Estimates
	2012-13			2013-14
	Budget $b	MYEFO $b		Budget $b	MYEFO $b
Financial assets	238.5	245.7		255.4	263.8
Non-financial assets	110.9	112.6		111.5	113.2
Total assets	349.4	358.4		366.8	377.0
Total liabilities	487.2	503.7		499.6	515.3
Net worth	-137.8	-145.3		-132.8	-138.3
Net financial worth(a)	-248.6	-257.9		-244.3	-251.5
Per cent of GDP	-16.0	-16.9		-15.0	-15.6
Net debt(b)	143.3	144.0		144.9	144.6
Per cent of GDP	9.2	9.4		8.9	9.0
Net interest payments	7.0	7.1		6.8	6.6
Per cent of GDP	0.5	0.5		0.4	0.4
	Projections
	2014-15			2015-16
	Budget $b	MYEFO $b		Budget $b	MYEFO $b
Financial assets	269.6	281.1		283.4	294.8
Non-financial assets	112.2	113.9		114.0	115.5
Total assets	381.9	395.0		397.4	410.3
Total liabilities	505.5	524.1		509.1	527.2
Net worth	-123.6	-129.1		-111.8	-116.9
Net financial worth(a)	-235.9	-243.0		-225.8	-232.4
Per cent of GDP	-13.7	-14.3		-12.4	-13.0
Net debt(b)	140.1	144.3		131.6	137.7
Per cent of GDP	8.1	8.5		7.3	7.7
Net interest payments	7.0	6.7		8.2	7.8
Per cent of GDP	0.4	0.4		0.4	0.4

(a) Net financial worth equals total financial assets minus total liabilities.

(b) Net debt equals the sum of deposits held, government securities, loans and other borrowing, minus the sum of cash and deposits, advances paid and investments, loans and placements.

Medium term

The budget position is projected to continue to strengthen over the medium term. The underlying cash balance is projected to reach a surplus of 1 per cent of GDP in 2017‑18, the same year as projected in Budget. This reflects the natural recovery in tax receipts as the economy continues to grow and the application of the Government's commitment to hold real growth in spending to 2 per cent a year, on average, until the budget surplus is at least 1 per cent of GDP, and while the economy is growing at or above trend (Chart 3.2). Net debt is projected to return to zero in 2020‑21, also unchanged from Budget (Chart 3.3).

Chart 3.2: Underlying cash balances projected to 2022‑23

Chart 3.3: Government net debt projected to 2022‑23

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