APPENDIX B: SENSITIVITY OF FISCAL AGGREGATES TO ECONOMIC
DEVELOPMENTS
Table B1 provides
a guide to the sensitivity of the forward estimates
of outlays and revenue to variations in economic parameters
in 1997-98. Such a guide can provide only a 'rule of
thumb' indication of the impacts on the budget of changes
in prices, wages and other parameters.
Table
B1: Sensitivity of Fiscal Aggregates to a 1 Percentage
Point Increase in Economic Parameters
- (a) National accounts basis excluding superannuation
and Commonwealth government redundancies.
(b) Impact on sales tax and excise revenue, assuming
uniform percentage change in all components of the
tax base.
(c) Impact on excise duty revenue.
(d) Impact on sales tax and customs duty revenue.
On the outlays side, estimates are provided for the
following assumptions about changes to four broad groups
of parameters:
- Prices - all price deflators are assumed to increase
by one percentage point at the start of the September
quarter 1997, with wage deflators left unchanged.
- Wages - all wage and salary rates are assumed to increase
by one percentage point from the beginning of the September
quarter 1997, with price deflators left unchanged.
- Newstart Allowance recipients - the total number of
recipients is assumed to increase by 5 per cent from
the beginning of the September quarter 1997.
- Safety Net Adjustment - an increase in the assumed
level of the Safety Net Adjustment determined by the
Australian Industrial Relations Commission (AIRC) of
$2 per annum.
On the revenue side, the figures show the estimated
impact of a one percentage point change in a range
of economic variables in 1997-98 as a whole. The CPI
is assumed to increase by one percentage point at the
start of the September quarter 1997.
Differences in impact over the years reflect:
- the full-year impact on outlays of variations in parameters
not occurring until the year following the variation;
- the effect on revenue collections of variations in
company and other individuals income occurring largely
in the year following the receipt of income; and
- for variations in most economic parameters, the flow-through
effect of a higher (or lower) base in a year on revenue
collections in subsequent years.
Projected outlays respond to changes in economic parameters
through a variety of mechanisms. For example, the Government's
decision to maintain pensions at 25 per cent of MTAWE
means that projected spending on pensions will depend
not just on changes to the CPI, by which pensions have
been indexed for some time, but also on expected changes
in the level of MTAWE. Payments to the States are subject
to guarantees which make them sensitive to changes
in the CPI.
In addition, a large component of Government spending,
comprising running costs, other Commonwealth Own Purpose
Outlays of a running cost nature and Specific Purpose
Payments to the States of a running cost nature, is
indexed to weighted averages of movements in underlying
inflation and the Safety Net Adjustment determined
by the AIRC. The Safety Net Adjustment is currently
assumed to increase in future years in line with the
recent decision handed down by the AIRC.
Economic growth, and employment growth, affect the
number of Newstart Allowance recipients and therefore
the total spending on benefits. However, the relationship
between GDP growth and Newstart Allowance recipients
is highly variable and difficult to quantify. For this
reason, Table
B1 only includes the impact of changes in the number
of Newstart Allowance recipients on the budget.
