Statement 3: Fiscal Strategy and Outlook
The Government's fiscal strategy
The Government's fiscal strategy aims to ensure fiscal sustainability over the medium term. Sustainability is a core requirement of fiscal policy since government has a responsibility to ensure that it can meet its current and future spending commitments. A sustainable fiscal position provides greater certainty for decision makers, supports broader economic sustainability (including macroeconomic stability) and requires a focus in the budget on policies which strengthen the structure of the economy.
Key elements of a sustainable fiscal strategy
The Government's medium‑term fiscal strategy involves:
- achieving budget surpluses, on average, over the medium term;
- keeping taxation as a share of GDP on average below the level for 2007‑08; and
- improving the Government's net financial worth over the medium term.
Achieving budget surpluses on average
The Government's fiscal strategy provides necessary flexibility for the budget balance to vary in line with economic conditions. This allows the 'automatic stabilisers' — the tendency for both revenue and spending to vary in line with economic conditions — to automatically contribute to the stability of aggregate demand. Surpluses over the medium term also contribute to a strong government balance sheet.
Keeping taxes below the level of 2007‑08
The Government's commitment to keeping taxes on average below the level in 2007‑08 of 24.7 per cent of GDP ensures that budget surpluses will be delivered through disciplined spending, not higher taxation. By directing expenditure to priority areas — such as skills and infrastructure — the fiscal strategy can help to achieve the Government's policy priority of ensuring that Australia is investing in the long‑term drivers of productivity and competitiveness. Focusing on quality spending, and reducing wasteful expenditure, allows the Government to allocate resources to high priority areas without placing an additional burden on taxpayers.
Improving the Government's net financial worth
Responsible fiscal policy looks beyond the forward estimates period — promoting fiscal sustainability over a much longer period of time. One indicator of the Government's longer term financial position and ability to withstand adverse economic shocks is its available stock of financially liquid net assets. To promote balance sheet sustainability, the fiscal strategy includes a commitment to improving the Government's net financial worth over the medium term.
The Government's commitment to improving net financial worth puts the focus on sustainability, thereby encouraging policies which structurally improve participation and productivity for the long‑term benefit of the economy. This forward‑looking perspective ensures that expenditure is directed at areas which help to promote the development of Australia's long‑term productive capacity, and the wellbeing of future generations.
If www.budget.gov.au responds slowly or you are having trouble downloading a document, try one of the Budget Website Mirrors
Note: Where possible, Budget documents are available in HTML and for downloading in Portable Document Format(PDF). If you require further information on any of the tables or charts on this website, please contact Treasury.
