Part 3: Fiscal strategy and outlook
Overview
The budget remains on track to record a surplus in 2012‑13, well ahead of any major advanced economy. In 2010‑11, the underlying cash deficit is expected to be $41.5 billion (3.0 per cent of GDP), an improvement of 1.3 per cent of GDP on the 2009‑10 outcome.
In 2012‑13, when the Australian budget is expected to return to surplus, the major advanced economies are still forecast to be in deficit by an average of 6 per cent of GDP. Net debt in the major advanced economies is expected to reach an average of 90 per cent of GDP in 2015, 14 times higher than the expected peak in Australia's net debt of 6.4 per cent of GDP.
A fiscal consolidation of 4½ per cent of GDP is projected for the three years to 2012‑13. This would be the fastest fiscal consolidation in at least forty years. Growing tax receipts and falling payments as a share of GDP are working in tandem to deliver the expected consolidation.
The historically high terms of trade and growth in the mining sector as a share of the economy have meant that the budget is more sensitive to developments in commodity and currency markets than in the past. Given the continuing uncertainty around the growth prospects for many of the world's major economies, this is a potential source of volatility for budget estimates.
The projected return to surplus in 2012‑13 has been maintained despite the impact of a higher Australian dollar weighing on expected tax receipts. Since the release of the Pre-Election Economic and Fiscal Outlook 2010 (PEFO), the Australian dollar has continued to appreciate in response to the strong outlook for the Australian economy relative to its international peers as well as the historically high terms of trade.
The Government has continued to deliver its fiscal strategy. Budgeted real growth in spending is less than 2 per cent in the years when the economy is expected to grow faster than trend and the Government has offset all new spending since PEFO. This ensures that the expected timing of the budget's return to surplus is not affected by new spending measures.
In this Mid-Year Economic and Fiscal Outlook, the Government has begun the task of delivering its election commitments, primarily focusing on those with a financial impact in 2010‑11.
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