Fiscal Strategy and Outlook
This statement outlines the fiscal outlook and how the Government has delivered on its fiscal strategy. The combined effects of a stronger economic outlook and fiscal discipline have delivered a significantly improved fiscal outlook in this Budget and brought forward the projected return to surplus by three years.
The Budget continues to deliver on the Government's strategy to return the budget to surplus. The fiscal stimulus that supported the economy during the economic slowdown associated with the global financial crisis is being withdrawn. Real growth in payments has been kept below 2 per cent in years when the economy is expected to grow above trend. And the additional tax receipts associated with a strengthening economy have been allowed to flow through to improve the budget position, while maintaining a tax‑to‑GDP ratio below the 2007‑08 level.
A small surplus is expected in 2012‑13, three years earlier than previously expected and ahead of any of the major advanced economies. In addition, the budget position in each year of the forward estimates has improved since the Mid‑Year Economic and Fiscal Outlook 2009‑10 (MYEFO). An underlying cash deficit of $40.8 billion (2.9 per cent of GDP) is now expected in 2010‑11, compared with $46.6 billon (3.5 per cent of GDP) in MYEFO.
While tax receipts have begun to improve in the period to 2012‑13, they remain around $110 billion lower than had been expected at the time of the 2008‑09 Budget.
Net debt is now expected to peak at 6.1 per cent of GDP in 2011‑12, half the level expected a year ago. This is in stark contrast to the expected average net debt position of major advanced economies of 82.4 per cent of GDP in 2011.
An improved fiscal outlook has been achieved while delivering on major reforms in the areas of health, taxation and national savings, skills and infrastructure. All new spending measures have been fully offset across the forward estimates.
The focus of the fiscal strategy will remain on returning the budget to surplus, including by constraining real expenditure growth to 2 per cent and by allowing the level of tax receipts to recover naturally with economic recovery. Once the budget returns to surplus, and while the economy is growing at or above trend, the Government will maintain expenditure restraint by retaining a 2 per cent real annual spending cap, on average, until surpluses are at least 1 per cent of GDP.
Appendix A illustrates the sensitivity of the budget estimates to changes in the economic outlook.
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