Mid-Year Economic and Fiscal Outlook 2005-06
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MID-YEAR ECONOMIC AND FISCAL OUTLOOK 2005-06 STATEMENT BY THE HONOURABLE PETER COSTELLO MP TREASURER OF THE COMMONWEALTH OF AUSTRALIA AND SENATOR THE HONOURABLE NICK MINCHIN MINISTER FOR FINANCE AND ADMINISTRATION December 2005 © Commonwealth of Australia 2005 ISBN 0 642 74308 8 This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without prior written permission from the Commonwealth. Requests and inquiries concerning reproduction and rights should be addressed to: Commonwealth Copyright Administration Attorney General’s Department Robert Garran Offices National Circuit CANBERRA ACT 2600 Or posted at: http://www.ag.gov.au/cca Internet The Australian Government budget papers and budget related information are available on the cental Budget website at: www.budget.gov.au. Printed by CanPrint Communications Pty Ltd FOREWORD The Mid-Year Economic and Fiscal Outlook 2005-06 (MYEFO) has been prepared in accordance with the Charter of Budget Honesty Act 1998. The Charter requires that the Government provide a mid-year budget report which provides updated information to allow the assessment of the Government’s fiscal performance against its fiscal strategy. Consistent with these requirements: • Part 1: Overview — contains summary information on the key fiscal and economic indicators. • Part 2: Economic outlook — discusses the domestic and international economic forecasts that underpin the budget estimates. • Part 3: Fiscal outlook — provides a discussion of the budget outlook and a summary of the factors explaining variations in the operating statement, balance sheet and cash flow statement since the 2005-06 Budget. This part also discusses the sensitivity of the forward budget estimates to changes in major economic parameters. • Appendix A: Policy decisions taken since the 2005-06 Budget — provides details of decisions taken since the 2005-06 Budget that affect revenue, expenses and capital estimates. • Appendix B: Government Finance Statistics (GFS) statements — provides the general government and consolidated whole of government financial statements on a GFS basis, consistent with the Accrual Uniform Presentation Framework. • Appendix C: Australian Accounting Standards (AAS) financial statements — provides AAS statements and notes to the financial statements. • Appendix D: Statement of Risks — provides details of general developments or specific events that may have an impact on the fiscal position, and contingent liabilities which are costs the government may possibly face, some of which are quantified. • Appendix E: Financial reporting standards and budget concepts — provides a discussion of key budget concepts relevant to the MYEFO and the external reporting standards upon which the MYEFO is based. • Appendix F: Historical Australian Government data — provides historical data for the Australian Government’s key fiscal aggregates. iii Contents FOREWORD ........................................................................................................ III PART 1: OVERVIEW.............................................................................................1 Domestic and international economic outlook ................................................................2 PART 2: ECONOMIC OUTLOOK .............................................................................5 Risks to the outlook.........................................................................................................6 International economic outlook .......................................................................................7 Domestic forecasts........................................................................................................10 PART 3: FISCAL OUTLOOK.................................................................................17 Overview .......................................................................................................................17 Revenue ........................................................................................................................18 Expenses.......................................................................................................................21 Net capital investment...................................................................................................24 Cash flows.....................................................................................................................24 Net debt and net worth..................................................................................................26 Attachment A: Reporting standards .............................................................................28 Attachment B: Budget financial statements .................................................................30 Attachment C: Sensitivity of fiscal expenses and revenue to economic developments.......................................................................................35 Attachment D: Tax expenditures..................................................................................38 Attachment E: Supplementary expense and capital tables and the Contingency Reserve ..........................................................................39 Attachment F: GST revenue provision to the States and Territories ...........................43 APPENDICES Appendix A: Policy decisions taken since the 2005-06 Budget ...................................47 Appendix B: Government Finance Statistics statements...........................................201 Appendix C: Australian Accounting Standards financial statements .........................215 Appendix D: Statement of Risks ................................................................................231 Appendix E: Financial reporting standards and budget concepts..............................239 Appendix F: Historical Australian Government data ..................................................251 v NOTES (a) The following definitions are used in the MYEFO: – `real’ means adjusted for the effect of inflation; – real growth in expenses is measured by the non-farm Gross Domestic Product (GDP) deflator; – one billion is equal to one thousand million; and – the budget year refers to 2005-06, while the forward years refer to 2006-07, 2007-08 and 2008-09. (b) Figures in tables and generally in the text have been rounded. Discrepancies in tables between totals and sums of components are due to rounding: – estimates under $100,000 are rounded to the nearest thousand; – estimates $100,000 and over are generally rounded to the nearest tenth of a million; – estimates midway between rounding points are rounded up; and – the percentage changes in statistical tables are calculated using unrounded data. (c) For the budget balance, a negative sign indicates a deficit while no sign indicates a surplus. (d) The following notations are used: * The nature of this measure is such that a reliable estimate cannot be provided. NEC/nec not elsewhere classified - nil .. not zero, but rounded to zero na not applicable (unless otherwise specified) nfp not for publication $m $ million $b $ billion vi (e) The Australian Capital Territory and the Northern Territory are referred to as ‘the Territories’. References to the ‘States’ or ‘each State’ include the Territories. The following abbreviations are used for the names of the States, where appropriate: NSW New South Wales VIC Victoria QLD Queensland WA Western Australia SA South Australia TAS Tasmania ACT Australian Capital Territory NT Northern Territory vii PART 1: OVERVIEW The economic and fiscal outlook for Australia remains strong. The Australian economy is expected to grow solidly in 2005-06, with the forecast for real economic growth unchanged since the 2005-06 Budget, notwithstanding the September quarter National Accounts. Strong fiscal outcomes are forecast and projected across the forward estimates. An underlying cash surplus of $11.5 billion is forecast for 2005-06, stronger than forecast at Budget, largely reflecting an increase in estimated cash receipts only partially offset by an increase in cash payments. The increase in estimated cash receipts since the 2005-06 Budget reflects increased dividends principally special dividends from Telstra, prior year corporate profits affecting this year’s company tax receipts, and strong employment growth affecting personal withholding receipts. The increase in estimated cash payments largely reflects policy measures announced since Budget, including additional drought relief to support drought affected regions, improving access to communications infrastructure in rural and regional Australia, and a structural adjustment package for the Australian fishing industry to help secure fish stocks. Table 1 presents the fiscal and underlying cash balances for 2005-06 and the forward years. Table 1: Summary of budget aggregates Estimates 2005-06 2006-07 Budget MYEFO Budget MYEFO Underlying cash balance ($b)(a) 8.9 11.5 7.9 9.7 Per cent of GDP 1.0 1.2 0.8 1.0 Fiscal balance ($b) 7.4 10.4 7.5 9.7 Per cent of GDP 0.8 1.1 0.8 1.0 Projections 2007-08 2008-09 Budget MYEFO Budget MYEFO Underlying cash balance ($b)(a) 8.5 10.1 9.3 10.7 Per cent of GDP 0.8 1.0 0.9 1.0 Fiscal balance ($b) 8.0 11.0 9.0 11.8 Per cent of GDP 0.8 1.0 0.9 1.1 (a) Excludes expected Future Fund earnings. The underlying cash surpluses projected for the future years emphasise Australia’s sound fiscal outlook at a time when many of the major advanced economies are