Statement 1: Budget Overview
The 2014‑15 Budget marks a major step by the Government to transform the role of government in people's lives.
This Budget is about asking all Australians — from households to businesses and the public sector — to make a contribution today to repair the budget and build a stronger, more prosperous future for all.
The Budget will redirect taxpayers' dollars from spending that is consumed today to productive investment for tomorrow. It will do this while supporting the most vulnerable, and taking significant steps towards ensuring that government can live within its means. The decisions in this Budget will move Australia towards equality of opportunity for all.
The Budget has been set in the context of slightly below trend growth for the Australian economy and the expectation that unemployment will remain elevated. Investment in resources projects is still expected to fall and to detract significantly from growth. Resources exports will rise as completed projects come on line, while the household sector will strengthen as it responds to low interest rates.
Looking to the longer term, population ageing coupled with falling terms of trade from historic highs will make it difficult to maintain the growth in living standards to which Australians are accustomed.
Given this outlook, the Budget balances the need to build our growth potential, while not placing additional near term pressure on the economy. The Budget delivers an $11.6 billion Infrastructure Growth Package that will contribute to $125 billion of additional infrastructure, including incentives to encourage asset recycling as a catalyst for unlocking significant new infrastructure investment. When construction projects supported by the Government are completed, they will add around 1 percentage point to annual GDP.
The Budget also delivers a $20 billion Medical Research Future Fund that will ensure Australia can drive world leading medical research discoveries needed to underpin the health system of the future, fundamental reforms of the higher education sector, and measures to support workforce participation.
The underlying cash deficit is projected to be $60 billion over four years to 2017‑18, compared to $123 billion over four years at the 2013‑14 Mid‑Year Economic and Fiscal Outlook (MYEFO). This substantial improvement is built off a reduction in average annual real payments growth from 2.6 per cent to 0.8 per cent.
By 2017‑18 the underlying cash deficit will have fallen to $2.8 billion (0.2 per cent of GDP), and the Government's finances are projected to be on a clear path to a credible surplus. Medium‑term projections show a surplus of well over one per cent of GDP by 2024‑25, even with future tax relief, and with average annual real payments growth of 2.7 per cent, compared to 3.7 per cent at MYEFO.
With the changes in this Budget debt would be $389 billion in a decade; $277 billion lower than the projection of $667 billion at MYEFO, and assuming future tax relief.
In 2014‑15 the Australian economy is forecast to grow slightly below trend, with a large fall in resources investment partly offset by a boost from higher resources exports and the household sector's response to low interest rates. The unemployment rate is forecast to reach 6¼ per cent by the June quarter 2015 and remain at this rate to the end of 2015‑16.
The underlying cash deficit in 2014‑15 is expected to be $29.8 billion (1.8 per cent of GDP), falling to $2.8 billion in 2017‑18 (Table 1).
|Underlying cash balance ($b)(b)||-18.8||-49.9||-29.8||-17.1||-10.6||-2.8||-110.1|
|Per cent of GDP||-1.2||-3.1||-1.8||-1.0||-0.6||-0.2|
|Fiscal balance ($b)||-23.5||-45.1||-25.9||-12.2||-6.6||1.0||-88.7|
|Per cent of GDP||-1.5||-2.8||-1.6||-0.7||-0.4||0.1|
(a) Total is equal to the sum of amounts from 2013‑14 to 2017‑18.
(b) Excludes net Future Fund earnings.
Without the consolidation outlined here, the budget would have remained in deficit for at least the next decade — a total of 16 years of deficits — leaving Australia vulnerable to external shocks, ill‑equipped to cope with population ageing, and increasingly reliant on future generations to pay off our debt. This situation would have arisen even if Australia achieved a further 10 years of uninterrupted economic activity — resulting in an unprecedented 33 years of economic growth.
By redirecting spending to more productive ends this Budget has enabled significant reforms, such as the Asset Recycling Fund, Higher Education deregulation and the Medical Research Future Fund. Spending growth has been significantly reduced and the net impact of policy decisions has been to reduce the deficit by $36 billion over the forward estimates.
The budget is on a clear track to surplus, with a small deficit of $2.8 billion in 2017‑18 and a surplus of well over 1 per cent of GDP by 2024‑25. Commonwealth Government Securities on issue will fall from the MYEFO estimate of $667 billion in 2023‑24 to $389 billion, assuming future tax relief. The size of Government is projected to fall with spending as a share of the economy expected to be 24.4 per cent in 2023‑24, down from 26.5 per cent projected in the MYEFO.