Fiscal outlook

Budget aggregates

An underlying cash deficit of $37.1 billion (2.2 per cent of GDP) is expected in 2016‑17, improving to a deficit of $6.0 billion (0.3 per cent of GDP) in 2019‑20.

In accrual terms, a fiscal deficit of $37.1 billion (2.2 per cent of GDP) is expected for 2016‑17, improving to a deficit of $2.1 billion (0.1 per cent of GDP) in 2019‑20.

A headline cash deficit of $53.4 billion is expected in 2016‑17, improving to a deficit of $14.4 billion in 2019‑20.

Table 2 provides key budget aggregates for the Australian Government general government sector.

Table 4 provides a summary of the cash flows of the Australian Government general government sector.

(a) Equivalent to cash receipts from the sale of non‑financial assets in the cash flow statement.

(b) Equivalent to cash payments for purchases of non‑financial assets in the cash flow statement.

(c) The acquisition of assets under finance leases decreases the underlying cash balance. The disposal of assets previously held under finance leases increases the underlying cash balance.

(d) Excludes expected net Future Fund earnings.

Underlying cash balance estimates

The estimated underlying cash deficit in 2016‑17 has deteriorated by $3.4 billion when compared with the 2015‑16 MYEFO. Table 5 provides a reconciliation of the variations in the underlying cash balance since the 2015‑16 Budget.

Since the 2015‑16 MYEFO, the effect of parameter and other variations has resulted in a $23.3 billion reduction in forecast receipts across the five years to 2019‑20, partly offset by a $8.9 billion reduction in payments across the five years to 2019‑20.

Since the 2015‑16 MYEFO, policy decisions have resulted in a $1.7 billion improvement in the underlying cash balance in the four years from 2016‑17 to 2019‑20. The overall impact of policy decisions on the bottom line has been more than fully offset.

*Data is not available.

(a) Total is equal to the sum of amounts from 2016‑17.

(b) Excludes expected net Future Fund earnings.

(c) 2019‑20 underlying cash balance as published in the medium term projections, page 3‑6 of Budget Paper No. 1: Budget Strategy and Outlook 2015‑16.

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

(e) 2019‑20 shows the total variation between medium term projections of the underlying cash balance published in the 2015‑16 Budget and Mid‑Year Economic and Fiscal Outlook 2015‑16, excluding the variation in net Future Fund earnings.

(f) 2019‑20 underlying cash balance as published in the medium term projections, page 19 of the 2015‑16 MYEFO.

(g) A positive number for receipts indicates an increase in the underlying cash balance, while a positive number for payments indicates a decrease in the underlying cash balance.

Offsetting new decisions

The Government remains committed to offsetting all new policy decisions. At this Budget, the overall impact of policy decisions on the bottom line is an improvement of $1.7 billion over the four years from 2016‑17 to 2019‑20. All new spending measures have been offset by savings in payments, not by policy increases to tax revenue.

The Government remains committed to implementing reforms, which continue to be delayed in the Senate. At this Budget, the impact of delays in passing these reforms has deteriorated the bottom line by $2.2 billion over the five years to 2019‑20. Prior to the 2016‑17 Budget, $13 billion worth of expenditure savings and $1.5 billion worth of revenue increases have not yet passed the Parliament.

Receipts estimates

Total receipts are expected to be $4.0 billion lower in 2016‑17 than estimated at the 2015‑16 MYEFO, with tax receipts $6.4 billion lower and non‑taxation receipts $2.3 billion higher.

Since the 2015‑16 MYEFO, non‑taxation receipts have been revised down by $3.1 billion in 2015‑16, primarily due to the agreement with the Victorian Government to reinvest the $1.5 billion provided for the East West Link project to fund other mutually agreed projects, and a delay in the expected receipt of proceeds from the reissue of spectrum licences previously expected in 2015‑16. Non‑taxation receipts have been revised up by $2.3 billion in 2016‑17, largely reflecting higher than expected dividend receipts from the Reserve Bank of Australia and the delayed spectrum licence receipts.

Policy decisions

Policy decisions since the 2015‑16 MYEFO are expected to reduce receipts by $1.7 billion in 2016‑17 and decrease receipts by $921 million over the five years to 2019‑20. Significant measures include:

• increasing tobacco excise and equivalent customs duties and reducing the duty free tobacco allowance. Tobacco excise and excise equivalent customs duties will be increased by four annual increases of 12.5 per cent per year from 2017 until 2020. In addition, from 1 July 2017 the duty free tobacco allowance will be reduced to 25 cigarettes or equivalent from the current allowance of 50 cigarettes. This is expected to increase receipts by $5.1 billion over the forward estimates period, including a GST component of $445 million that will be paid to States and Territories;
• reforming the taxation of concessional superannuation contributions. From 1 July 2017 the Division 293 tax income threshold will be reduced to $250,000 (from $300,000) and the annual cap on contributions will be reduced to $25,000 (currently $30,000 under 50; $35,000 for 50 and over). This is estimated to increase receipts by $2.4 billion over the forward estimates period;
• providing targeted personal income tax relief by increasing the 32.5 per cent personal income threshold from $80,000 to $87,000 from 1 July 2016. This measure will lower taxes for around 3 million individuals and is expected to reduce receipts by $4.0 billion over the forward estimates period; and
• backing small businesses by reducing their tax rate to 27.5 per cent, starting with businesses with a turnover of up to $10 million on 1 July this year. Encouraging investment and jobs over 10 years by reducing the company tax rate to 25 per cent by 2026‑27. These changes are expected to reduce receipts by $2.7 billion over the forward estimates period.

Further details of Government policy decisions are provided in Budget Paper No. 2, Budget Measures 2016‑17.

Parameter and other variations

Since the 2015‑16 MYEFO, forecasts for total wages and non‑mining profits have been revised down, partly offset by higher forecasts for mining profitability owing to recent strength in commodity prices. As a result, the forecast for nominal GDP has been revised down by $27.5 billion over the four years to 2018‑19. These revisions, the compositional change to nominal GDP and weaker tax collections in the current year have combined to weaken the outlook for tax receipts.

Weaker forecast total wages contribute to lower forecasts for taxes from individuals of $12 billion over the four years to 2018‑19, excluding new policy. In addition, forecast superannuation fund tax has been revised down by $5.5 billion. These downward revisions have been partly offset by upward revisions to forecast indirect taxes.

Further information on expected tax receipts is provided in Statement 4: Revenue. Analysis of the sensitivity of the receipts estimates to changes in the economic outlook is provided in Statement 7: Forecasting Performance and Scenario Analysis.

Payment estimates

The overall impact of new policy decisions on payments in this Budget is an improvement to the bottom line of $2.4 billion over the five years to 2019‑20, with all increases in expenditure offset by savings in payments. Since the 2015‑16 MYEFO, total payments for 2016‑17 have decreased by $233 million.

Policy decisions

Major policy decisions since the 2015‑16 MYEFO that increase payments include:

• providing additional funding to the State and Territory Governments for public hospitals by retaining key features of Activity Based Funding, including the National Efficient Price, which is expected to increase payments by up to $2.9 billion over the three years to 2019‑20. Growth in the Government's contribution will be capped at 6.5 per cent a year over this period;
• funding support for government and non‑government schools for the 2018 to 2020 school years, which is expected to increase payments by $928 million over the three years to 2019‑20. Total school funding will be indexed by an education sector specific index of 3.56 per cent, with an allowance for changes in enrolments;
• establishing a new Tax Avoidance Taskforce as part of the ten year enterprise tax plan, which is expected to increase cash payments by $49 million in 2016‑17 and $679 million over the four years to 2019‑20. This measure will enhance the Australian Taxation Office's audit and compliance activities targeting multinationals, large corporations and high wealth individuals. These changes are expected to increase receipts by $2.2 billion over the forward estimates period;
• continuing Australia's military contribution to the international effort to disrupt and degrade Daesh (or ISIL) in Iraq and Syria, which is expected to increase payments by $345 million in 2016‑17 and $373 million over the three years to 2018‑19;
• delaying the implementation of the higher education reforms announced in the 2014‑15 Budget and the 2014‑15 MYEFO by an additional year to undertake further consultation, which is expected to increase payments by $327 million in 2016‑17 and $573 million over five years to 2019‑20;
• improving youth employment outcomes through the establishment of a Youth Jobs PaTH program for young job seekers aged under 25 years, which is expected to increase payments by $12 million in 2016‑17 and $249 million over the five years to 2019‑20; and
• continuing Australia's military contribution to international stabilisation and counter‑terrorism efforts in the Middle East Region, which is expected to increase payments by $183 million in 2016‑17 and $189 million over the three years to 2018‑19.

Major policy decisions that decrease payments include:

• achieving efficiencies in the operation of the Australian Public Service by maintaining the annual efficiency dividend at 2.5 per cent for an additional year before stepping down to 1 per cent by 2019‑20, and reinvesting in specific initiatives to assist agencies to manage their transformation to a more modern public sector, which is expected to decrease payments by $1.4 billion over the three years to 2019‑20;
• revising the Aged Care Funding Instrument, through changes to the criteria that determine the funding paid to aged care providers, which is expected to decrease payments by $119 million in 2016‑17 and $1.2 billion over the five years to 2019‑20, noting that there is a separate upward estimates variation to the Residential and Flexible Care program reflecting higher than anticipated growth;
• deferring implementation of the Child Care Subsidy, Additional Child Care Subsidy and Community Child Care Fund by one year to 1 July 2018, due to the Family Tax Benefit reforms required to fund the child care package not being passed by the Senate, which is expected to decrease payments by $43 million in 2016‑17 and $1.2 billion over the five years to 2019‑20;
• returning unallocated funds from the Asset Recycling Initiative, following negotiation with State and Territory Governments, which is expected to decrease payments by $453 million in 2016‑17 and $854 million over three years to 2018‑19; and
• reforming Work for the Dole to be better targeted and more cost effective, by changing the Stream A job seekers entry into the Work for the Dole phase after twelve months of participation in jobactive, instead of the current six months, which is expected to decrease payments by $128 million in 2016‑17 and $494 million over four years to 2019‑20.

Further details of Government policy decisions are provided in Budget Paper No. 2, Budget Measures 2016‑17. The expense estimates provided in Budget Paper No. 2 are in accrual terms and may not align with the payment figures provided in this statement.

Parameter and other variations

This Budget also incorporates some major changes in expected payments in 2016‑17 as a result of parameter and other variations since the 2015‑16 MYEFO. Major increases include:

• payments related to a number of savings measures that have been delayed in the Senate, which are expected to increase by $1.0 billion in 2016‑17 ($2.2 billion over the five years to 2019‑20);
• payments to the States and Territories under the Natural Disaster Relief and Recovery Arrangements program, which are expected to increase by $653 million in 2016‑17 (although a reduction in payments of $119 million is expected over the five years to 2019‑20), largely reflecting a deferral of payments previously expected to be made in 2015‑16;
• payments to the States and Territories for public hospitals, which are expected to increase by $518 million in 2016‑17 ($1.8 billion over the five years to 2019‑20), largely reflecting revised activity estimates from the States and Territories and the release of the final 2016‑17 National Efficient Price and National Efficient Cost determinations;
• payments related to the Residential and Flexible Care program, which are expected to increase by $454 million in 2016‑17 ($2.5 billion over the five years to 2019‑20), largely reflecting higher than expected growth in care subsidies provided to residential aged care facilities;
• payments related to the Child Care Subsidy, Child Care Benefit and Child Care Rebate, which together are expected to increase by $384 million in 2016‑17 ($2.9 billion over the five years to 2019‑20), largely reflecting an increase in the forecast number of hours of child care used and average child care fees charged;
• payments related to the Australian Renewable Energy Agency's grant activities, which are expected to increase by $110 million in 2016‑17 ($155 million over the five years to 2019‑20), largely reflecting additional grants provided as part of the Large Scale Solar Competitive funding round and Research and Development funding round; and
• payments related to the public sector defined benefit superannuation schemes, which are expected to increase by $87 million in 2016‑17 ($312 million over the five years to 2019‑20), largely reflecting a reduction in forecast exits from the schemes.

Major decreases in expected payments in 2016‑17 as a result of parameter and other variations since the 2015‑16 MYEFO include:

• payments related to the Medical Benefits program, which are expected to decrease by $190 million in 2016‑17 ($454 million over the five years to 2019‑20), largely reflecting recent changes in utilisation trends;
• payments under the Fuel Tax Credits Scheme, which are expected to decrease by $162 million in 2016‑17 ($953 million over the five years to 2019‑20), reflecting lower than expected usage of fuels that are eligible for Fuel Tax Credits;
• royalty payments to Western Australia, which are expected to decrease by $148 million in 2016‑17 ($407 million over the five years to 2019‑20), largely reflecting a drop in forecast commodity prices along with a projected reduction in the volume of production across the forward years. This decrease in payments is offset by a corresponding decrease in royalty receipts;
• payments related to the National Blood Agreement for the National Blood Authority (NBA), which are expected to decrease by $115 million in 2016‑17 ($436 million over the five years to 2019‑20), largely reflecting lower than expected demand for blood and blood products;
• payments related to the Jobs, Education & Training Child Care Fee Assistance program, which are expected to decrease by $94 million in 2016‑17 ($167 million over the five years to 2019‑20), largely reflecting decreases in the number of families or children accessing assistance and the total hours of approved care accessed under the program; and
• payments related to the Non‑Government Schools National Support program, which are expected to decrease by $87 million in 2016‑17 ($740 million over the five years to 2019‑20), largely reflecting a downward revision to enrolment projections and changes to school structures (opening and closing of schools).

Consistent with previous Budgets, the underlying cash balance has been improved by the regular draw down of the conservative bias allowance. Details of this draw down are provided in the Other Purposes section of Statement 5: Expenses and Net Capital Investment.

Analysis of the sensitivity of payments estimates to changes in the economic outlook is provided in Statement 7: Forecasting Performance and Scenario Analysis.

Fiscal balance estimates

The fiscal deficit is expected to be $37.1 billion (2.2 per cent of GDP) in 2016‑17, which reflects a deterioration of $4.4 billion (0.3 per cent of GDP) compared with the 2015‑16 MYEFO. Table 6 provides a reconciliation of the variations in the fiscal balance since the 2015‑16 Budget.

*Data is not available.

(a) Total is equal to the sum of amounts from 2016‑17.

(b) 2019‑20 fiscal balance is assumed to be consistent with the underlying cash balance as published in the medium term projections, page 3‑6 of Budget Paper No. 1: Budget Strategy and Outlook 2015‑16.

(c) 2019‑20 shows the total variation between medium term projections of the assumed fiscal balance published in the 2015‑16 Budget and Mid‑Year Economic and Fiscal Outlook 2015‑16.

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

(e) 2019‑20 fiscal balance is assumed to be consistent with the underlying cash balance as published in the medium term projections, page 19 of the 2015‑16 MYEFO.

(f) 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.

Revenue estimates

Changes in accrual revenue are generally driven by the same factors as cash receipts, though differences arise where revenue raised in a given year is not received in that year.

Expense and net capital investment estimates

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

• superannuation benefits, where there are differences between the timing of cash payments and accrued expenses as a result of revaluations recommended by the actuary; and
• the Natural Disaster Relief and Recovery Arrangements, where expenses are recognised in the financial year in which the disaster occurs, rather than when cash payments are made.

Detailed information on expenses and net capital investment can be found in Statement 5: Expenses and Net Capital Investment.

Headline cash balance estimates

The headline cash balance consists of the underlying cash balance, net cash flows from investments in financial assets for policy purposes (for example, the equity funding of NBN Co) and net Future Fund earnings. Table 7 provides further detail of differences between the underlying and headline cash balance estimates of the Australian Government general government sector.

The headline cash balance for 2016‑17 is estimated to be a deficit of $53.4 billion, compared with a deficit of $48.9 billion at the 2015‑16 MYEFO. Over the four years from 2016‑17 to 2019‑20, the headline cash deficit is projected to decline by $39.1 billion to $14.4 billion in 2019‑20.

(a) Total is equal to the sum of amounts from 2016‑17 to 2019‑20.

(a) Excludes expected net Future Fund earnings.

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