Fiscal strategy and outlook

The Government remains committed to its strategy of returning the budget to surplus by maintaining strong fiscal discipline, strengthening the Government's balance sheet and redirecting government spending to boost productivity and workforce participation.

The 2016‑17 Budget maintains a steady trajectory towards surplus. The deficit is expected to fall from $37.1 billion in 2016‑17 (2.2 per cent of GDP) to $6 billion in 2019‑20 (0.3 per cent of GDP).

Government payments as a share of GDP are forecast to decline from 25.8 per cent of GDP in 2016‑17 to 25.2 per cent of GDP in 2019‑20, above their long‑run average level of 24.9 per cent. Tax receipts as a share of GDP are forecast to return to the long‑term average in 2017‑18. Net debt as a share of GDP is expected to peak in 2017‑18 and then decline over the remainder of the forward estimates and the medium term.

Government receipts continue to be impacted by weaker nominal GDP, weighed down by weaker wages and inflation. Downwards revisions to forecast tax receipts since the 2015‑16 MYEFO are $13.5 billion over the four years to 2018‑19, excluding new policy. These revisions have been primarily driven by lower taxes from individuals and superannuation funds, partly offset by upward revisions to indirect taxes such as the GST. As a result, the underlying cash balance has deteriorated by $3.4 billion in 2016‑17 compared with the 2015‑16 MYEFO.

The Government remains focused on restraining growth in government spending and aims to achieve a steady trajectory towards a balanced budget and lower government debt. The overall impact of new policy decisions in this Budget is an improvement to the bottom line of $1.7 billion over the four years to 2019‑20. Despite slower than expected growth in nominal GDP and weaker tax receipts since the last Budget, the Government has limited new spending and delivered net savings.

The Government's strategy of maintaining fiscal discipline has helped constrain spending growth across portfolios. As shown in Table 3, expenses are estimated to decline in real terms across the majority of portfolios over the four years to 2019‑20. The strong growth in the Social Services, Health and Education and Training portfolios reflects increasing income support recipient numbers and demand for services — noting that the growth in Health and Education and Training expenses is partly due to growth in the programmes transferred to those portfolios from the Social Services portfolio, such as child care and aged care related programmes (under the machinery of government changes).

(a) Excludes Department of Veterans' Affairs.

(b) Excludes General Revenue Assistance to the States and Territories and Australian Government interest payments.

(c) Expense estimates for some portfolios are adjusted to include estimated effects of machinery of government changes in 2015‑16. Growth rates are calculated with 2015‑16 as the base year.

The average annual pace of fiscal consolidation across the forward estimates is 0.4 per cent of GDP. This is consistent with the average pace of consolidation in the 2015‑16 MYEFO. Given the absence of stronger nominal GDP growth, the contribution to consolidation from revenue is less than previously expected.

The Government retains the target of reaching a surplus of one per cent of GDP as soon as possible. This will be achieved by reducing payments to a lower and more sustainable share of the economy at around a quarter of GDP, while boosting revenues by supporting growth through economic policies that drive jobs and growth.

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