Statement 1: Budget Overview
This statement provides an overview of the economic and fiscal outlook, summarises the Government's fiscal strategy and outlines the key budget priorities.
Consumer price inflation has intensified over the past two years, reaching 4.2 per cent in the year to March 2008. As a result of slower global growth, tighter credit conditions and higher interest rates, economic growth is forecast to moderate to 2 per cent in 2008‑09. With the economy slowing and tight monetary and fiscal policies in place, inflation is expected to ease to 3 per cent by mid 2009.
Powerful countervailing forces are confronting the Australian economy. Slower growth in advanced economies and greater global financial market turbulence could slow growth in the Australian economy. Counteracting this, robust growth in emerging economies is expected to lead to further large rises in Australia's terms of trade, which will boost income and increase upward pressure on prices. Through this Budget, the Government is putting downward pressure on inflation and helping to keep the economy strong in the face of difficult global financial conditions.
The Government understands that working families are under pressure from the rising cost of living. This Budget implements election commitments to ease pressure on working families by cutting income tax, reducing the costs of educating and looking after children, and making housing more affordable. In particular, the Government is making substantial cuts to income tax, providing eligible parents with a 50 per cent Education Tax Refund, and increasing the Child Care Tax Rebate from 30 to 50 per cent.
The 2008‑09 Budget also demonstrates the Government's commitment to Australia's future by implementing far‑sighted initiatives to strengthen education and skills, infrastructure, health, environmental sustainability and innovation. The Government has re-prioritised spending and taxation to these areas and will invest most of the 2007‑08 and 2008‑09 Budget surpluses in three new funds for education, health and infrastructure for long-term investment to build a modern nation.
Through a genuine commitment to fiscal responsibility, the Government has ushered in a new era of responsible economic management.
An underlying cash surplus of $21.7 billion (1.8 per cent of GDP) is expected in 2008‑09 — the largest surplus as a proportion of GDP since 1999‑00 — with further strong surpluses projected in the following three years. The Government has invested responsibly, with every dollar of new spending in 2008‑09 on election commitments and other priorities offset by spending cuts. Over four years, the Government has achieved total savings from spending cuts and revenue measures of $33.3 billion, which more than offsets new spending of $27.4 billion.
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