Part 1: Overview
International growth prospects have weakened markedly since Budget and the risks to global stability from the European sovereign debt crisis have intensified. While these significant global headwinds are weighing heavily on Australia's economic and fiscal outlook, the Government remains on track to deliver a budget surplus in 2012‑13.
The deterioration in global conditions has contributed to a weaker near‑term outlook for the Australian economy than at Budget, with forecast gross domestic product (GDP) and employment growth both revised lower.
Conditions are also expected to remain uneven, with the weaker global economy, the high Australian dollar and cautious household spending behaviour creating significant challenges for some sectors.
Notwithstanding the deterioration in global conditions since Budget, the Australian economy continues to outperform the developed world with solid growth prospects, low unemployment, a record pipeline of resources investment, and strong public finances.
The downward revision to the economic outlook from Budget has reduced tax receipts by over $20 billion over the forward estimates. Lower employment growth since Budget is impacting on taxes on wages and salaries, and volatile financial markets are affecting equity prices and hence capital gains receipts.
The underlying cash deficit is expected to be $37.1 billion (2.5 per cent of GDP) in 2011‑12, returning to a small surplus of $1.5 billion (0.1 per cent of GDP) in 2012‑13. Table 1.1 presents the fiscal and underlying cash balances for 2011‑12 to 2014‑15.
While the revised outlook for revenue has made the return to surplus more difficult than at Budget, the European sovereign debt crisis has underscored the importance of maintaining fiscal credibility.
This is why the Government is taking steps to build savings steadily over the forward estimates, to ensure Australia's public finances and economy remain strong and to underpin confidence at a time of heightened global instability.
Table 1.1: Budget aggregates
- Excludes expected Future Fund earnings.
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