• Home
• Purchase
• Budget FAQ
• Help

• Budget Speech
• Budget at a Glance
• Budget Overview
• Budget Paper No.1
• Budget Paper No.2
• Budget Paper No.3
• Budget Paper No.4
• Appropriation Bills

• Mid-Year Economic and Fiscal Outlook
• Updated Economic and Fiscal Outlook
• Final Budget Outcome

• Portfolio Budget Statements
• Portfolio Supplementary Estimates Statements
• Portfolio Additional Estimates Statements
• Portfolio Supplementary Additional Estimates Statements

• Ministerial Statements

Assessment of the fiscal outlook against the strategy

For 2008‑09, the Government committed to achieving a surplus of at least 1.5 per cent of GDP to help ease inflationary pressures in the economy. The Government is honouring this commitment by delivering a surplus of 1.8 per cent of GDP. The Government has achieved this by banking upward revisions to tax revenue, rather than spending them. The Government has been highly disciplined in spending, with increases in spending in 2008‑09 on election commitments and other priorities more than offset by savings, through cutting ineffective and wasteful programs and delivering administrative efficiencies. This is a responsible fiscal strategy given current economic conditions.

An underlying cash surplus of $21.7 billion is expected in 2008‑09 compared with an estimated surplus of $14.3 billion at PEFO. In accrual terms, a fiscal surplus of $23.1 billion is estimated for 2008‑09 compared to $13.6 billion at PEFO. The fiscal outlook is for further strong underlying cash and fiscal surpluses in the forward years.

The underlying cash balance is the Government's key fiscal indicator since the cash position has a more immediate impact on the macroeconomy than the accruing position measured by the fiscal balance. The fiscal balance is a better indicator of the longer term economic consequences of government decisions.

Table 1: Australian Government general government sector budget
aggregates

1. Excludes expected Future Fund earnings.

The 2008‑09 underlying cash surplus is the largest budget surplus as a proportion of GDP since 1999‑2000 and the second highest in 35 years (1973‑74). On a consistent accounting basis which includes Future Fund earnings, it is the highest budget surplus as a percentage of GDP since 1970‑71. A strong budget surplus ensures fiscal policy is playing its part to take pressure off inflation.

This Budget includes significant savings, many from cutting ineffective and poorly targeted programs and delivering administrative efficiencies. The savings reduce inflationary pressures in the economy, safe‑guard the fiscal position against economic shocks and allow taxes to remain at levels consistent with supporting long‑term economic growth.

All new policy for 2008‑09 since PEFO, including the Government's election commitments, has been more than offset by savings (Table 2). For 2008‑09, the Government has identified gross savings of $7.3 billion (of which, $1.6 billion are election commitments) and $33.3 billion over the forward estimates period. These savings from spending cuts and revenue measures more than offset election commitments and other spending priorities across the forward estimates.

Moreover, the Government has met all new expenditure measures in 2008‑09 by spending cuts through reprioritising existing programs.

Table 2: Assessment against the fiscal target

1. Excludes GST receipts and payments of $371 million, which have no net impact on policy decisions.

Real spending is estimated to grow by only 1.1 per cent in 2008‑09, down from the estimate at the Mid‑Year Economic and Fiscal Outlook 2007‑08 of 2.9 per cent. Spending growth has fallen by about two thirds and is estimated to grow by the slowest pace in nine years. Over the budget and forward estimates period, spending is projected to grow on average by 2.3 per cent a year. This is significantly lower than the 4.0 per cent growth in spending over the preceding four years to 2007‑08.

Government operating expenses include spending on wages and salaries of public servants. It excludes transfers (such as pensions), interest payments and government capital investment spending. The Government has significantly reduced forecast growth in real operating expenses, from an average 5.7 per cent over the four years to 2007‑08 to 0.7 per cent over the four years to 2011‑12 (Chart 1 below).

Chart 1: Government operating expenses

Source: Australian Government Final Budget Outcomes and Treasury estimates.

Box 1: Recent spending trends At times, past fiscal policy settings have not restrained government spending and allowed large increases in spending growth. Chart A illustrates the growth in real government payments from the early 1990s through to 2008‑09 using a moving 4 year average. The growth in payments during the early 1990s reflects an increase in higher social and welfare payments in a period when the economy was generally regarded as being in recession. The rise at the end of the 1990s partly represents an increase in payments associated with the introduction of the GST, while the rise since 2004‑05 reflects higher spending financed by increased revenues associated with the commodities boom. Chart A: Trend growth in real government spending Source: Australian Government Final Budget Outcomes and Treasury estimates. The 2008‑09 Budget aims to ease pressure on inflation by exercising restraint on spending. From 2008‑09, real spending is forecast to grow on average by 2.3 per cent per year over the four years to 2011‑12. This compares with the previous four year period (to 2007‑08) where real spending grew on average by 4.0 per cent per year. Spending can add to inflationary pressures if it is pro‑cyclical; that is, increases in spending stimulate demand in a strongly growing economy. Chart B below shows that spending in 2008‑09 is restrained compared to recent spending growth. Chart B: Spending and nominal GDP growth (1990-91 to 2008-09) Source: Australian Government Final Budget Outcomes and Treasury estimates. Chart B plots nominal GDP growth against nominal spending growth over the period 1990‑91 to 2008‑09. The chart's axes are located at the averages prior to the start of the commodities prices boom in 2003‑04 (5.4 per cent for nominal GDP growth and 6.0 per cent for spending growth). In quadrant A, nominal GDP growth is above average and spending growth is below average, which is consistent with a scenario of strong economic growth combined with low budget spending (for example on unemployment benefits). Quadrant D shows the opposite scenario, where low economic growth is combined with higher than average budget spending. A and D are consistent with fiscal policy which is relatively counter‑cyclical. In contrast, quadrant B has higher than average spending and nominal GDP growth, while quadrant C has both below average. Three of the four outcome years since the start of the commodities prices boom (2003‑04 to 2006‑07) as well as the estimate for 2007‑08 are either inside or on the edge of quadrant B, where high nominal GDP growth is combined with high spending growth. By contrast, the estimate for 2008‑09 is in quadrant A, as a result of spending cuts at the same time as continued strong nominal GDP growth. The 2000‑01 growth in nominal payments partly reflects the introduction of the GST.

Cash flows

Variations in the underlying cash balance estimates

In 2008‑09, an underlying cash surplus of $21.7 billion is expected, compared with the PEFO estimate of $14.3 billion. Table 3 provides a summary of Australian Government general government sector cash flows.

Table 3: Summary of Australian Government general government sector
cash flows

1. Equivalent to cash receipts from the sale of non‑financial assets in the cash flow statement.
2. Equivalent to cash payments for purchases of new and second‑hand non‑financial assets in the cash flow statement.
3. The acquisition of assets under finance leases decreases the underlying cash balance. The disposal of assets previously held under finance leases increases the underlying cash balance.
4. Excludes expected Future Fund earnings.

While the 2008‑09 underlying cash surplus is $7.4 billion higher than estimated at PEFO, the fiscal balance has increased by $8.4 billion (to $23.1 billion) compared to the PEFO estimate of $14.7 billion. A headline cash surplus of $23.6 billion is forecast for 2008‑09, compared with a surplus of $18.3 billion at PEFO. The higher surplus largely reflects the increase in the underlying balance.

Since PEFO, total policy decisions in 2008‑09 have had a positive impact of $2.0 billion on the underlying cash balance (see Table 4) and $0.9 billion on the fiscal balance (Table 5). This difference primarily reflects the timing impacts of government decisions where an expense may accrue in the budget year, but the cash payment may not be paid until a subsequent year. In particular, the Education Tax Refund reduces the fiscal balance by $1.0 billion but has no impact on the underlying cash balance in 2008‑09.

Since PEFO, total parameter and other variations have had a positive impact of $5.4 billion on the underlying cash balance and $7.5 billion on the fiscal balance. Part of this difference is due to the variance between tax receipts and tax revenue, reflecting compliance activity, new tax debts arising and the repayment or write‑off of past tax debts. These differences will exist for all revenue heads and vary between years. Further, updates in the forecast Future Fund investment portfolio have a positive impact of $0.4 billion on the fiscal balance, but no impact on the underlying cash balance.

Table 4 provides a reconciliation of the variations in the underlying cash balance estimates. The variations driving the changes in the underlying cash balance are largely the same as the variations driving the change in the fiscal balance. Further details are provided in the 'Variations to the fiscal balance' section below.

Table 4: Reconciliation of 2007‑08 Budget, 2007‑08 MYEFO, 2007 PEFO and
2008‑09 Budget underlying cash balance estimates

1. Excludes the public debt net interest effect of policy measures.
2. Excludes expected Future Fund earnings.

Variations in fiscal balance estimates

Table 5 provides a reconciliation of the fiscal balance estimates.

Table 5: Reconciliation of 2007‑08 Budget, 2007‑08 MYEFO, 2007 PEFO and
2008‑09 Budget fiscal balance estimates^(a)

1. A positive number for revenue indicates an increase in the fiscal balance, while a positive number for expenses and net capital investment indicates a decrease in the fiscal balance.
2. Excludes the public debt net interest effect of policy measures.

Variations in revenue estimates

Total revenue in 2008‑09 is expected to be $8.8 billion higher than forecast at PEFO.

Policy decisions taken since PEFO increase revenue by $2.4 billion in 2008‑09. The major policy decisions affecting revenue include:

• the Government's election commitment to defer tax cuts for the highest income earners, providing savings of $5.3 billion over the forward estimates period;
• $640 million in 2008‑09 ($3.1 billion from 27 April 2008 to 2011‑12) from increased excise on 'other excisable beverages' (including 'ready‑to‑drinks') ;
• $564 million in 2008‑09 ($2.5 billion from Budget night to 2011‑12) from removing the current exemption of condensate from the crude oil excise;
• $226 million in 2008‑09 ($2.9 billion over four years from 2008‑09) from increasing the Migration Program by providing an additional 31,000 skilled stream places and 6,500 family stream places;
• a special dividend from Australia Post of $150 million; and
• $105 million in 2008‑09 ($2.0 billion over four years from 2008‑09) from increasing funding for compliance activities by the Australian Taxation Office.

Taxation revenue parameter and other variations have contributed $3.6 billion to this revision. Taxation revenue is expected to be subject to opposing forces. Stronger growth is expected in individuals' incomes, from increased employment and wages, and strong rises in commodity prices contribute to higher company profits and additional petroleum resource rent tax. Offsetting these influences are recent falls in share prices, which are expected to reduce capital gains, and higher interest expenses for business.

Non‑taxation parameter and other revenue in 2008‑09 is expected to be $2.8 billion higher than forecast in the PEFO, largely reflecting:

• an $814 million increase in the Reserve Bank of Australia's projected dividend (largely reflecting additional realised capital gains by the Reserve Bank);
• a $432 million increase in Future Fund earnings reflecting an increase in interest earnings ($751 million) partly offset by a reduction in estimated dividends ($319 million) due to revisions to the Future Fund's forecast portfolio; and
• an increase in interest received by the Australian Office of Financial Management on its investments.

Further detail on how the revised outlook for the economy has affected individual revenue heads over the forward estimates is provided in Statement 5. An analysis of the sensitivity of the taxation revenue estimates to changes in the economic parameters is provided in Appendix B.

Variations in expense estimates

Since PEFO, estimated total expenses for 2008‑09 have decreased by $1.7 billion reflecting increased expenses from new policy decisions of $1.3 billion, offset by parameter and other variations of $3.1 billion.

Major policy decisions since PEFO that have increased expenses include:

• $400 million in 2008‑09 ($1.2 billion over five years from 2007‑08) to provide eligible schools with new or upgraded computers and communications technology as part of the Digital Education Revolution;
• $340 million in 2008‑09 ($1.6 billion over four years from 2008‑09) for increases to the Child Care Tax Rebate from 30 per cent to 50 per cent for out‑of‑pocket child care expenses;
• $233 million in 2008‑09 ($993 million over four years from 2008‑09) for the Trade Training Centres in Schools Program to provide facilities to enhance vocational education opportunities for Years 9 to 12 secondary school students;
• $233 million in 2008‑09 ($1.9 billion over five years from 2007‑08) to provide 630,000 additional training places under the Skilling Australia for the Future package to help address skills and labour shortages in Australia; and
• $227 million in 2008‑09 ($2.4 billion over four years from 2008‑09) for expenses resulting from the additional 37,500 permanent migrants under the Migration Program, comprising $132 million ($1.4 billion over four years from 2008‑09) in health, education, employment and other services and $95 million ($1.4 billion over four years from 2008‑09) additional GST payments to the states.

The impact of these policy decisions on expenses has been substantially offset by savings, including:

• $634 million in 2008‑09 ($959 million over three years from 2007‑08) for the termination of the OPEL contract due to OPEL's Implementation Plan not satisfying the condition precedent of the funding agreement;
• $412 million in 2008‑09 ($1.8 billion over five years from 2007‑08) for the application of the one‑off 2 per cent efficiency dividend to departmental funding of Australian Government agencies;
• $307 million in 2008‑09 ($1.1 billion over five years from 2007‑08) for the abolition of the Access Card project which was to replace existing health and social services cards and vouchers;
• $305 million in 2008‑09 of savings from Defence for overseas defence operations;
• $286 million in 2008‑09 ($256 million over four years to 2011‑12) from the recovery of overpaid compensation paid to the States for the decision to allow certain small businesses and non‑profit organisations to pay their GST on an annual rather than monthly or quarterly basis; and
• $232 million in 2008‑09 ($960 million over four years from 2008‑09) from reduced public health insurance rebate costs as a result of the increases to the Medicare levy surcharge thresholds.

In 2008‑09, parameter and other variations have decreased forecast expenses by $3.1 billion since PEFO. This primarily reflects a change in accounting treatments whereby purchases of Defence weapon systems are now classified as capital expenditures rather than expense. The new budget accounting framework is discussed in further detail in Appendix A. The remaining decrease in expenses primarily reflects:

• a $326 million reduction in estimated expenses primarily due to delays in Defence capital acquisition projects;
• a $318 million reduction in estimated expenses for Parenting Payment reflecting an increase in the number of people no longer eligible for the payment due to higher reported incomes;
• a $178 million reduction in estimated expenses for Pharmaceuticals and Pharmaceutical Services driven by a lower than expected growth in usage of a range of drugs on the Pharmaceutical Benefits Scheme;
• a $128 million reduction in estimated expenses for Family Tax Benefit driven by a decrease in customer numbers due to higher reported incomes; and
• the regular draw‑down of the conservative bias allowance¹ reducing estimated expenses by around $1.2 billion.

In 2008‑09, these decreases in expenses are partially offset by:

• a $562 million increase in estimated expenses for the Disability Support Pension (DSP) reflecting a lower than anticipated movement of customers from the DSP to Newstart Allowance under the Welfare to Work package;
• a $240 million increase in estimated expenses for interest rate subsidies available under Exceptional Circumstances assistance, primarily due to a higher than expected take‑up by eligible farmers;
• a $221 million increase in estimated expenses for the Child Care Benefit resulting from higher than forecast use of child care services; and
• a $207 million increase in estimated expenses for Medicare Services reflecting increases in demand for a range of medical services including services provided by general practitioners, pathology services and diagnostic imaging services.

In 2007‑08, estimated total expenses have increased by $2.3 billion since PEFO. This reflects new spending of $3.1 billion, including:

• $1.4 billion for the Seniors Bonus to provide a payment of $500 to eligible individuals before 30 June 2008;
• $500 million for additional funding to the States for public hospitals to be delivered through the Australian Health Care Agreements to relieve the pressure on public hospitals;
• $500 million for grants to Australian Universities for capital investment in priority areas;
• $427 million for the Carers' Bonus for a lump sum payment to carers before 30 June 2008, in recognition of their contribution in caring for people with disabilities and the frail aged;
• $100 million for capital funding to the States to build new supported accommodation for those with disabilities; and
• $75 million for the development of feasibility and planning studies for projects to address urban congestion.

The impact of these policy measures on expenses has been partially offset by reductions in estimated expenses due to parameter and other variations, including a $187 million reduction in Newstart Allowance, reflecting a lower number of recipients than previously forecast, and a $177 million reduction in Parenting Payment reflecting an increase in the number of people no longer eligible for the payment due to higher reported incomes.

More detailed information on expenses can be found in Statement 6. A full description of all policy measures since PEFO can be found in Budget Paper No. 2, Budget Measures 2008‑09.

Variations in net capital investment estimates

In 2008‑09, forecast net capital investment has increased by $2.1 billion since PEFO. This primarily reflects an increase of $2.8 billion due to a change in accounting treatment under the new accounting framework whereby purchases of Defence weapon systems are now classified as capital expenditures rather than being expensed. The new budget accounting framework is discussed in further detail in Appendix A.

The impact of the change in accounting treatment has been partially offset by a net reduction in capital investment of $679 million largely comprising:

• a reduction of $923 million reflecting delays in Defence capital acquisition projects, partially offset by an increase of $54 million for various capital projects for the Department of Immigration and Citizenship including investment in information technology systems and refurbishment of accommodation; and
• increases arising from new policy measures of $143 million, including an increase of $125 million for the National Medical Stockpile to replace expiring pharmaceuticals and pandemic vaccines and $21 million for capital purchases for the establishment of First Home Saver Accounts.

Net financial worth, net worth and net debt

Net financial worth measures a government's net holdings of financial assets and can be calculated from the balance sheet by subtracting financial assets from total liabilities. Net financial worth includes debt, but also superannuation liabilities, equity and other financial assets offsetting that liability. Net financial worth is a key indicator of financial sustainability since it is a broader measure of the financial position than net debt. Net financial worth for the Australian Government general government sector is forecast to be ‑$3.6 billion in 2008‑09 and expected to become positive in 2009‑10.

Net worth is forecast to be $86.0 billion in 2008‑09, compared with $33.6 billion at PEFO. This primarily reflects the Government adopting a new accounting standard at this Budget which requires that defence weapons be treated as an asset (see Appendix A for more information).

Since PEFO, the forecast level of net debt has fallen from ‑$33.9 billion to ‑$45.0 billion, largely reflecting a higher than anticipated underlying cash surplus for 2008‑09. With negative net debt, the Government is expected to earn net interest receipts of $2.2 billion in 2008‑09.

Table 6 provides a summary of Australian Government general government sector net financial worth, net worth, net debt and net interest payments.

Table 6: Australian Government general government sector net financial
worth, net worth, net debt and net interest payments

1. Net financial worth equals total financial assets minus total liabilities. That is, it excludes non‑financial assets.
2. Net debt equals the sum of deposits held, advances received, government securities, loans and other borrowing, minus the sum of cash and deposits, advances paid and investments, loans and placements.
3. The net debt estimates include the expected impact of the Future Fund rebalancing its portfolio allocation by increasing its holding of equities, which are not included in the calculation of net debt.

Box 2: Budget transparency The 2008‑09 Budget includes a number of reforms to fiscal reporting frameworks that allow the community to understand more clearly the Government's fiscal policy and overall financial performance. The Government has adopted major accounting policy reforms that improve the transparency, reliability and understanding of the budget financial statements. In this Budget, the Government is presenting a single set of financial statements, rather than the three sets presented in previous budgets. Many commentators have noted the confusion and reduced government accountability from presenting financial statements based on three different reporting frameworks — the Australian Bureau of Statistics Government Finance Statistics (ABS GFS), the Uniform Presentation Framework and Australian Accounting Standards (AAS). Further, a single accounting policy framework will apply right through all whole of government budget papers, from the budget to the consolidated financial statements (CFS). Previous budget statements were prepared on a different accounting basis from the financial statements audited in the CFS. The budget financial statements will comply with both ABS GFS and AAS, except for disclosed departures. ABS GFS remains the basis of budget accounting policy, except where the Government decides to depart because AAS provides a better conceptual basis for presenting information of relevance to users of public sector financial reports. In this Budget, consistent with both AAS and ABS GFS, the goods and services tax is recognised as a Commonwealth tax. Further information on these changes to accounting policy can be found in Appendix A to this statement. This Budget also includes: Fiscal projections for the underlying cash balance going forward 20 years in the medium‑term fiscal outlook. A more comprehensive analysis of the sensitivity of budget financial aggregates to specific economic scenarios. Further information can be found at Appendix B to this statement. Updated and extended historical fiscal data. Further information can be found at Statement 10. This information is important for budget transparency as it allows analysis of fiscal policy. Improving budget transparency is an ongoing process. The Government is committed to reforms previously announced as part of Operation Sunlight, including better management of tax expenditures, enhanced reporting of long‑term fiscal pressures and improved program reviews.

---

¹ The forward estimates include an allowance for the established tendency of expenses for existing Government policy (particularly demand driven programs) to be higher than estimated in the forward years. To offset this, the contingency reserve includes an allowance based on past experience to preserve the overall integrity of the forward estimates. This allowance, known as the conservative bias allowance, is progressively reduced so that the budget year conservative bias is zero by budget night.

• Copyright
• |
• Privacy
• |
• Disclaimer