Statement 1: Budget Overview (Continued)
Introduction
The Government is charting a sensible pathway to surplus over the forward estimates, while still making the vital investments needed to build a stronger economy, a smarter nation, and a fairer society.
Global financial market sentiment has improved since late 2012, though global economic conditions remain challenging, particularly in the major advanced economies. Against this backdrop, the global economy is undergoing dramatic structural change as economic activity shifts increasingly towards Asia.
The Australian economy is expected to continue to grow faster than most of the developed world, building on Australia's record of resilience and outperformance over the past five years. Australia's economic outlook remains favourable, with solid economic growth, low unemployment and contained inflation over the coming years.
The Australian economy is expected to undergo two large and important transitions over the forecast period. Following the largest investment boom in Australia's history, the resources sector will transition away from the investment phase toward exceptional growth in production and exports. More broadly, the Australian economy will transition to non‑resource drivers of growth.
While Australia's economic fundamentals remain strong, conditions are expected to remain uneven across the economy. The unusual and enduring combination of a sustained high dollar and falling commodity prices is putting acute competitive pressures on both the resource and non‑resource sectors. Many businesses are successfully adapting to these challenges, including by increasing productivity and taking advantage of the opportunities presented by the shift in global growth towards Asia. Still, many businesses have also had to squeeze margins to remain competitive in both export markets and domestically.
These challenging conditions have had a significant and widespread impact on corporate profitability, with the National Accounts measure of company profits falling for a record five consecutive quarters. Consistent with this hit to profitability, nominal GDP growth has been unusually weak. Nominal GDP growth fell short of real GDP growth for the third consecutive quarter in December 2012, the first time this has happened in at least the past‑half century. The unusual divergence between real and nominal GDP growth is consistent with solid growth in the volume of production but weakness in prices across the economy.
This has had a significant impact on the level of company tax receipts expected in 2012‑13 and over the forward estimates. Lower than expected capital gains tax and resource rent taxes have compounded the fall in company tax receipts. Income tax withholding and consumption taxes have been revised down to a lesser extent, reflecting the forecast for modest wages growth and solid consumption growth. Since the 2012‑13 Mid‑Year Economic and Fiscal Outlook (MYEFO), tax receipts have been revised down by around $60 billion over the four years to 2015‑16. Had tax receipts stayed at the same tax‑to‑GDP ratio of 2007‑08, the Budget would have been in surplus from 2012‑13 onwards.
This hit to government revenues will see a delay in the return to surplus, and has required further structural savings to improve the sustainability of the budget. The Government remains committed to maintaining strong public finances, consistent with its fiscal strategy. The Budget sets out measures to return to surplus over the forward estimates, balancing the need for further consolidation against the detrimental impact that a sharp fiscal contraction in the near term would have on jobs and growth in the economy. A strong economy is a critical foundation for strong public finances. Offsetting the large revenue write‑down in a short time period would have put jobs and growth at risk, especially given the transitions underway in the economy.
The fiscal plan detailed in this Budget will ensure Australia's public finances remain amongst the strongest in the world, with net debt as a share of GDP expected to peak at less than one‑eighth of the level in the major advanced economies. The medium‑term fiscal strategy will see even this low level of net debt eliminated by 2021‑22. Real growth in spending has remained low, at an average rate of 1.3 per cent from 2012‑13 to 2016‑17, the lowest five‑year average growth rate for 25 years.
The Government has been able to maintain fiscal restraint while still delivering historic economic and social reforms. These reforms will secure our future, drive greater productivity and workforce participation and give current and future generations the best opportunity to succeed in the Asian Century.
To return the budget to surplus and fund these investments the Government has made $43.0 billion of savings in this Budget. Over the six budgets since 2008‑09 the Government has identified over $180 billion in savings. Many of these savings will endure, improving the budget bottom line in the medium and long term as well. These savings mean that DisabilityCare Australia and the National Plan for School Improvement are fully offset to 2023‑24 and beyond.
The underlying cash deficit is expected to be $18.0 billion (1.1 per cent of GDP) in 2013‑14 (Table 1). The deficit falls over the forward estimates, and the underlying cash balance is expected to reach balance in 2015‑16, and surplus in 2016‑17.
| Actual | Estimates | Projections | ||||||
|---|---|---|---|---|---|---|---|---|
| 2011‑12 | 2012‑13 | 2013‑14 | 2014‑15 | 2015‑16 | 2016‑17 | |||
| Underlying cash balance ($b)(a) | -43.4 | -19.4 | -18.0 | -10.9 | 0.8 | 6.6 | ||
| Per cent of GDP | -2.9 | -1.3 | -1.1 | -0.6 | 0.0 | 0.4 | ||
| Fiscal balance ($b) | -44.5 | -20.3 | -13.5 | -6.3 | 6.0 | 10.8 | ||
| Per cent of GDP | -3.0 | -1.3 | -0.8 | -0.4 | 0.3 | 0.6 | ||
(a) Excludes net Future Fund earnings.
Building a stronger, smarter and fairer Australia
This Budget will help build a stronger, smarter and fairer Australia. The Budget will make Australia stronger through supporting jobs and growth, driving productivity improvements through investments in infrastructure and skills, and by improving fiscal sustainability. It will make Australia smarter by investing in education and innovation. And it will make Australia fairer by ensuring every Australian can achieve their potential and that no one is left behind.
It announces the next wave of the Government's flagship Nation Building Program, which will invest in productivity enhancing roads, rail and ports. It invests in high‑quality infrastructure projects that will boost Australia's productive capacity. Projects such as Brisbane Cross City Rail and Sydney Motorways will relieve congestion and improve liveability in our biggest cities.
It recognises the critical role of education. As the next phase of the Government's plan to ensure all Australians get a world class education, it is making a substantial investment in school funding through the National Plan for School Improvement. It makes a record investment in early childhood education, while more students are studying at university than ever before. This Budget funds more sub‑bachelor and post‑graduate university places, and increases funding for research fellowships.
It funds the establishment of DisabilityCare Australia, the National Disability Insurance Scheme, one of the biggest social policy reforms in our nation's history, to ensure that Australians with significant and permanent disability get the support they need when they need it.
It reaffirms the Government's commitment to Australia's national security and interests, and provides Defence with the resources it needs to deliver on the priorities in the 2013 Defence White Paper. It helps make our communities safer by funding local engagement activities for youth, community infrastructure and law enforcement efforts.
It provides for important new funding for better health care for all Australians, including measures to provide access to new medicines and medical procedures, improve cancer treatment and support services, and to fund research that will help to prevent, diagnose and treat cancer.
It funds important investments in rural and regional Australia, with the National Drought Program Reform providing better support for farmers and their families.
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