Statement 1 (continued)
Fiscal strategy and outlook
The Government remains committed to the medium-term fiscal strategy of achieving budget surpluses, on average, over the course of the economic cycle — and aims to return the budget to surplus as soon as possible. This Budget continues the deliberate effort to prioritise spending towards areas that will build a stronger economy, recognising the importance of growth in contributing to fiscal sustainability.
Since the 2014‑15 Budget, expected total tax receipts have been downgraded by around $14 billion in 2015‑16 and $52 billion over the four years to 2017‑18. That brings the downgrades in forecast tax receipts since the Pre‑Election Economic and Fiscal Outlook 2013 to over $90 billion across the forward years. The rapid fall in the iron ore price has been the largest single contributor to write-downs to Government tax receipts over the past year. Lower forecasts for wage growth have also led to lower income tax collections.
Consistent with the Government's fiscal strategy, these variations in tax receipts have been allowed to flow through to the bottom line. This Budget does not seek to offset the deterioration in receipts by dramatically reducing Government spending or hiking taxes.
While the overall fiscal position is somewhat weaker than expected in last year's Budget, the underlying cash balance is projected to strengthen over the forward estimates period. In addition, the pace of consolidation averages around 0.5 per cent of GDP per annum over the forward estimates — the same pace as forecast in the Budget last year. A return to surplus is projected in 2019-20, the same year as projected in the 2014‑15 MYEFO, with surpluses projected over the remainder of the medium term.
Consistent with the Government's fiscal strategy, the size of government (measured by the payments-to-GDP ratio) is set to fall over the forward estimates period from 25.9 per cent to 25.3 per cent. The average annual real growth in payments is expected to be 1.1 per cent in the four years to 2017‑18, slightly higher than the comparative rate at the 2014‑15 MYEFO (1.0 per cent).
The Government is maintaining a disciplined approach to its decision making. The decision not to proceed with the Paid Parental Leave Scheme, which was fully funded in the budget, has provided room for other priorities. The net impact of not proceeding with the scheme, together with all decisions in the Budget, results in a $1.6 billion improvement to the budget bottom line over the forward estimates.
Commonwealth Government Securities on issue are expected to rise to $573 billion by 2025-26 as a result of the weaker underlying cash balance and associated higher public debt interest expense accumulating over the medium term. Gross debt in 2023‑24 is expected to be around $112 billion lower than the $667 billion inherited from the former Government.
Over the next decade, net debt is projected to peak at 18.0 per cent of GDP in 2016‑17 before falling to 7.1 per cent of GDP by 2025-26.
The 2015 Intergenerational Report showed that structural savings measures already implemented by the Government are making a significant contribution towards achieving fiscal sustainability over the longer term.
While significant progress has been made, the task of budget repair remains ongoing and more work needs to be done in future budgets to continue to build a sustainable fiscal trajectory.
| Nominal expenses 2015‑16 Estimates ($m) |
Percentage of total expenses (%) |
Real growth 2014‑15 to 2018-19 (%)(c) | |
|---|---|---|---|
| Agriculture | 1,710 | 0.4 | -11.7 |
| Attorney-General's | 4,298 | 1.0 | -13.6 |
| Communications | 2,164 | 0.5 | -14.1 |
| Defence(a) | 32,779 | 7.5 | 1.7 |
| Education and Training | 28,892 | 6.6 | 6.0 |
| Employment | 2,916 | 0.7 | 5.1 |
| Environment | 2,327 | 0.5 | 14.8 |
| Finance | 10,167 | 2.3 | -6.8 |
| Foreign Affairs and Trade | 6,001 | 1.4 | -15.2 |
| Health | 48,034 | 11.1 | 5.9 |
| Immigration and Border Protection | 4,784 | 1.1 | -39.9 |
| Industry and Science | 3,473 | 0.8 | -30.5 |
| Infrastructure and Regional Development | 4,960 | 1.1 | -11.2 |
| Parliament | 232 | 0.1 | -2.3 |
| Prime Minister and Cabinet | 2,380 | 0.5 | -13.4 |
| Social Services | 144,151 | 33.2 | 15.2 |
| Treasury(b) | 49,343 | 11.4 | -4.2 |
| Veterans' Affairs | 12,178 | 2.8 | -12.0 |
(a) Excludes Department of Veterans' Affairs.
(b) Excludes General Revenue Assistance to the States and Territories and Commonwealth Debt Management interest payments.
(c) Expense Estimates for some portfolios adjusted for effects of machinery of government changes in 2014‑15.
Consistent with the medium-term fiscal strategy, the Government remains fully committed to achieving a return to surplus as soon as possible.
The medium-term projections of the underlying cash balance show that while budget surpluses are anticipated from 2019-20 to 2025-26, additional policy effort will be required to achieve the Government's target surplus of 1 per cent of GDP.