Statement 1: Fiscal Strategy and Budget Priorities
Fiscal outlook
The fiscal outlook for Australia continues to remain sound, with the Government forecasting a ninth budget surplus in 2006-07.
Ten years of fiscal and economic achievement has led to the elimination of Government debt in net terms. The consequent reduction in debt servicing costs has produced on-going savings which can be applied to investment in physical and intellectual infrastructure. The 2006-07 Budget advances a number of major initiatives. These include substantial cuts in personal taxes for low and middle-income earners, improvements to the international competitiveness of top marginal income tax rates, enhancements to depreciation tax arrangements to improve business efficiency and competitiveness, and a plan for substantial simplification and enhancement of Australia's superannuation system. The budget also continues the Government's commitment to families through increasing the income test threshold for the maximum rate of Family Tax Benefit Part A, investing significantly in health and medical research and providing significant additional funding for road and rail infrastructure.
An underlying cash surplus of $10.8 billion is expected in 2006-07 compared with an estimated surplus of $9.7 billion at the Mid-Year Economic and Fiscal Outlook 2005-06 (MYEFO). Underlying cash surpluses continue to be projected across the forward estimates, helping to contain inflationary pressures in the economy and adding to national savings.
Table 1: Budget aggregates
- Excludes expected Future Fund earnings from 2005-06 onwards.
In accrual terms, a fiscal surplus of $10.3 billion is now expected for 2006-07, compared to a surplus of $9.7 billion estimated at MYEFO.
Net debt has now been eliminated, after falling from a peak of 18.5 per cent of GDP ($95.8 billion) in 1995‑96. Net debt servicing costs have fallen by 1.5 per cent of GDP in this period. Net worth is projected to become positive in 2008-09.
Australia's very strong fiscal position compared to OECD countries is highlighted in Chart 1. The fiscal position amongst OECD countries, on average, is expected to remain in deficit in 2006-07, notwithstanding strong global growth.
Chart 1: International comparison of budget balances
Source: OECD data are for the total general government sector and sourced from OECD Economic Outlook 78, December 2005. Australian data are for the general government sector and sourced from Statement 13.