Statement 8: Statement of Risks (Continued)
Risks to the Budget — overview
The revenue and expense estimates and projections published in the 2013‑14 Budget Papers are based on a range of economic and other parameters. If the economic outlook were to differ from that presented in the Budget, the revenue and expense estimates and projections would also change. The sensitivity of Budget estimates to changes in economic assumptions is discussed in Appendix A of Statement 3.
Although the Australian economy is forecast to grow close to its trend rate over the forward estimates, a degree of uncertainty continues in the global economy and will continue to present risks to the forecasts. Moreover, the effects of the earlier economic downturn continue to weigh on tax collections.
To the extent that unanticipated changes in economic circumstances occur, their impact will flow through to government payments and revenue forecasts in particular. For example, over the past year the outlook for economic growth and tax revenue in 2012‑13 has weakened, reflecting weaker nominal economic growth (in particular weaker corporate profitability), a slower recovery in capital gains tax and lower revenues from resource rent taxes.
In addition, revenue forecasting relies heavily on the observed historical relationships between the economy, tax bases and tax revenues. Such relationships may shift as economic conditions change and present a further risk to the estimates. For example, the real and financial dimensions of the fragile global economy and uneven domestic conditions have posed particular challenges in estimating both the quantum and timing of loss utilisation. Losses incurred during the downturn can be carried forward to offset gains or profits as the economy recovers, such that to the extent tax revenue improves it does so with some lag.
As in previous years, the Budget is subject to a number of contingent liabilities. A large number of these contingent liabilities reflect indemnities, including those relating to the Department of Defence, the Defence Materiel Organisation, the Future Fund Management Agency and Future Fund Board of Guardians, and the Reserve Bank of Australia.
The Government has also issued a number of guarantees, such as those relating to guarantee schemes for the banking and financial sector, payments by the Export Finance and Insurance Corporation and the superannuation liabilities of the Commonwealth Bank prior to its sale to the private sector.
Other significant contingent liabilities relate to uncalled capital subscriptions and credit facilities to international financial institutions and legal cases concerning the Australian Government. The Government continues to have robust and conservative strategies in place to reduce its potential exposure to these contingent liabilities.
There have been several changes to both the quantifiable and unquantifiable risks since the Mid‑Year Economic and Fiscal Outlook 2012‑13 (MYEFO). General revaluations of securities and deposits have led to certain risks such as the Guarantee of State and Territory Borrowings and the Financial Claims Scheme being modified. Some new risk items have also arisen since the MYEFO.
Contingent liabilities, contingent assets and other fiscal risks with a possible impact on the forward estimates greater than $20 million in any one year, or $50 million over the forward estimates period, are listed in this statement. Information on contingent liabilities and contingent assets is also provided in the Australian Government's annual consolidated financial statements and in the annual financial statements of departments and non‑budget entities.
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