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Australian Government Coat of Arms

Budget | 2015-16

Budget 2015-16
Australian Government Coat of Arms, Budget 2015-16

Statement 3 (continued)

Fiscal outlook

Budget aggregates

An underlying cash deficit of $35.1 billion (2.1 per cent of GDP) is expected in 2015‑16, improving to a deficit of $6.9 billion (0.4 per cent of GDP) in 2018‑19.

In accrual terms, a fiscal deficit of $33.0 billion (2.0 per cent of GDP) is expected for 2015‑16, improving to a deficit of $3.2 billion (0.2 per cent of GDP) in 2018‑19.

A headline cash deficit of $44.8 billion is expected in 2015‑16, improving to a deficit of $17.3 billion in 2018‑19.

Table 5 provides key budget aggregates for the Australian Government general government sector.

Table 5: Australian Government general government sector budget aggregates
  Actual   Estimates   Projections    
  2013‑14
$b
  2014‑15
$b
2015‑16
$b
2016‑17
$b
  2017‑18
$b
2018‑19
$b
  Total(a)
$b
Receipts 360.3   377.3 398.0 422.5   453.6 488.2   2,139.6
Per cent of GDP 22.8   23.5 24.0 24.2   24.7 25.2    
Payments(b) 406.4   415.0 429.8 444.9   464.3 491.1   2,245.2
Per cent of GDP 25.7   25.9 25.9 25.5   25.3 25.3    
Net Future Fund earnings 2.3   3.4 3.3 3.4   3.7 4.0   17.8
Underlying cash balance(c) ‑48.5   ‑41.1 ‑35.1 ‑25.8   ‑14.4 ‑6.9   ‑123.4
Per cent of GDP ‑3.1   ‑2.6 ‑2.1 ‑1.5   ‑0.8 ‑0.4    
Revenue 373.9   384.1 405.4 433.4   466.2 501.3   2,190.3
Per cent of GDP 23.6   23.9 24.5 24.8   25.4 25.9    
Expenses 413.8   420.3 434.5 452.7   471.8 499.4   2,278.7
Per cent of GDP 26.2   26.2 26.2 25.9   25.7 25.8    
Net operating balance ‑39.9   ‑36.2 ‑29.1 ‑19.2   ‑5.6 1.9   ‑88.4
Net capital investment 3.8   3.1 3.9 4.2   3.6 5.1   19.9
Fiscal balance ‑43.7   ‑39.4 ‑33.0 ‑23.4   ‑9.2 ‑3.2   ‑108.2
Per cent of GDP ‑2.8   ‑2.5 ‑2.0 ‑1.3   ‑0.5 ‑0.2    
Memorandum item:                    
Headline cash balance ‑52.5   ‑43.2 ‑44.8 ‑43.9   ‑24.7 ‑17.3   ‑173.8

(a) Total is equal to the sum of amounts from 2014‑15 to 2018‑19.

(b) Equivalent to cash payments for operating activities, purchases of non‑financial assets and net acquisition of assets under finance leases.

(c) Excludes net Future Fund earnings.

Table 6 provides a summary of the cash flows of the Australian Government general government sector.

Table 6: Summary of Australian Government general government sector cash flows
  Estimates   Projections 
  2014‑15
$b
2015‑16
$b
2016‑17
$b
  2017‑18
$b
2018‑19
$b
Cash receipts            
Operating cash receipts 375.1 396.1 422.2   453.3 487.4
Capital cash receipts(a) 2.2 1.9 0.3   0.3 0.8
Total cash receipts 377.3 398.0 422.5   453.6 488.2
Cash payments            
Operating cash payments 403.2 418.7 433.4   451.7 477.3
Capital cash payments(b) 11.8 11.2 11.5   12.6 13.8
Total cash payments 415.0 429.8 444.9   464.3 491.1
Finance leases and similar arrangements(c) 0.0 0.0 0.0   0.0 0.0
GFS cash surplus(+)/deficit(‑) ‑37.7 ‑31.9 ‑22.5   ‑10.7 ‑2.9
Per cent of GDP ‑2.3 ‑1.9 ‑1.3   ‑0.6 ‑0.1
less Net Future Fund earnings 3.4 3.3 3.4   3.7 4.0
Underlying cash balance(d) ‑41.1 ‑35.1 ‑25.8   ‑14.4 ‑6.9
Per cent of GDP ‑2.6 ‑2.1 ‑1.5   ‑0.8 ‑0.4
Memorandum items:            
Net cash flows from investments in financial assets for policy purposes ‑5.5 ‑12.9 ‑21.4   ‑14.0 ‑14.5
plus Net Future Fund earnings 3.4 3.3 3.4   3.7 4.0
Headline cash balance ‑43.2 ‑44.8 ‑43.9   ‑24.7 ‑17.3

(a) Equivalent to cash receipts from the sale of non‑financial assets in the cash flow statement.

(b) Equivalent to cash payments for purchases of non‑financial assets in the cash flow statement.

(c) 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.

(d) Excludes expected net Future Fund earnings.

Underlying cash balance estimates

The estimated underlying cash deficit in 2015‑16 has deteriorated by $3.9 billion when compared to the 2014‑15 MYEFO. Table 7 provides a reconciliation of the variations in the underlying cash balance since the 2014‑15 Budget.

Since the 2014‑15 MYEFO, the effect of parameter and other variations has resulted in a $21.3 billion reduction in receipts across the four years to 2017‑18, partly offset by a $17.4 billion reduction in payments.

Since the 2014‑15 MYEFO, policy decisions have resulted in a $9.3 billion reduction in the underlying cash balance in the four years to 2017‑18. After taking into account the provisions the Government has previously made relating to the Paid Parental Leave Scheme, as well as the revenue costs associated with the Levy and Company Tax cut, the overall impact of policy decisions on the bottom line has been more than fully offset (refer Table 3).

Table 7: Reconciliation of underlying cash balance estimates
  Estimates   Projections    
  2014‑15
$m
2015‑16
$m
2016‑17
$m
  2017‑18
$m
  Total
$m
2014‑15 Budget underlying cash balance(a) ‑29,773 ‑17,084 ‑10,562   ‑2,825   ‑60,244
Per cent of GDP ‑1.8 ‑1.0 ‑0.6   ‑0.2    
Changes from 2014‑15 Budget to 2014‑15 MYEFO              
Effect of policy decisions(b) ‑2,314 ‑2,195 ‑501   950   ‑4,059
Effect of parameter and other variations ‑8,275 ‑11,960 ‑9,781   ‑9,606   ‑39,622
Total variations ‑10,589 ‑14,155 ‑10,282   ‑8,656   ‑43,681
2014‑15 MYEFO underlying cash balance(a) ‑40,362 ‑31,239 ‑20,844   ‑11,480   ‑103,925
Per cent of GDP ‑2.5 ‑1.9 ‑1.2   ‑0.6    
Changes from 2014‑15 MYEFO to 2015‑16 Budget              
Effect of policy decisions(b)(c)              
Receipts 40 ‑432 396   783   787
Payments 618 4,093 2,943   2,448   10,102
Total policy decisions impact on underlying cash balance ‑578 ‑4,525 ‑2,547   ‑1,665   ‑9,315
Effect of parameter and other variations(c)              
Receipts ‑2,214 ‑4,950 ‑7,163   ‑6,993   ‑21,321
Payments ‑2,143 ‑5,335 ‑4,440   ‑5,517   ‑17,435
less Net Future Fund earnings 110 ‑265 ‑279   ‑225   ‑658
Total parameter and other variations impact on underlying cash balance ‑181 650 ‑2,445   ‑1,251   ‑3,227
2015‑16 Budget underlying cash balance(a) ‑41,121 ‑35,115 ‑25,836   ‑14,396   ‑116,468
Per cent of GDP ‑2.6 ‑2.1 ‑1.5   ‑0.8    

(a) Excludes expected net Future Fund earnings.

(b) Excludes secondary impacts on public debt interest of policy decisions and offsets from the Contingency Reserve for decisions taken.

(c) A positive number for receipts indicates an increase in the underlying cash balance, while a positive number for payments indicates a decrease in the underlying cash balance.

Receipts estimates

Total receipts are expected to be $5.4 billion lower in 2015‑16 than estimated at the 2014‑15 MYEFO, with tax receipts $6.5 billion lower and non‑taxation receipts $1.1 billion higher.

Non‑taxation receipts have been revised up by $1.1 billion in 2015‑16 and $258 million over the four years to 2017‑18. This primarily reflects lower than expected forecasts of royalties offset by increases in other non‑taxation receipts, including the $1.5 billion of unspent funding from the Victorian Government in relation to the East West Link project required to be returned consistent with the obligations under relevant agreements with the Commonwealth.

Revenue decisions taken by this Government, up to and including the 2015‑16 Budget, have reduced revenue by $5.4 billion in accrual terms compared with decisions taken by the former Government.

Chart 6: Cumulative effect of revenue measures since the 2008‑09 Budget (a)

Chart 6: Cumulative effect of revenue measures since the 2008-09 Budget

Source:(a) Cumulative value of revenue measures taken in each budget year

Cumulative effect of revenue measures since the 2008‑09 Budget (a)
Years 2008-09 Budget to 2013 PEFO
2008-09 28.99
2009-10 26.05
2010-11 20.69
2011-12 50.45
2012-13 79.14
2013-14 107.33
2013-14 -14.35
2014-15 -7.44
2015-16 -5.37

Source:(a) Cumulative value of revenue measures taken in each budget year

Policy decisions

Policy decisions since the 2014‑15 MYEFO are expected to reduce receipts by $432 million in 2015‑16, but increase receipts by $396 million in 2016‑17, $783 million in 2017‑18 and $1,886 million in 2018‑19. Significant measures include:

  • continuing the GST compliance program. This is expected to increase receipts by $3.6 billion over the forward estimates period, including a GST component of $1.8 billion that will be paid to states and territories. Arrangements for funding these activities will be settled with the states and territories in accordance with the GST Administration Performance Agreement;
  • a tax cut to all small businesses through a 1.5 per cent point tax cut for small companies and a 5 per cent tax discount on income from unincorporated small business activity. These tax cuts will be available from the 2015‑16 income year, and are estimated to decrease receipts by $3.3 billion over the forward estimates period. This measure will deliver lower taxes to both incorporated and unincorporated small businesses, improving their cash flow and assisting them to grow;
  • expanding accelerated depreciation for all small businesses. From Budget night until 30 June 2017, small businesses with a turnover of less than $2 million will be able to deduct immediately assets they acquire and install ready for use, provided the asset costs less than $20,000. This will provide additional support and a boost to small business activity and investment. This measure is expected to decrease receipts by $1.8 billion over the forward estimates period; and
  • modernising the methods available to calculate work‑related car expense deductions. From the 2015‑16 income tax year, the '12 per cent of original value' and the 'one‑third of actual expenses' methods for calculating work‑related car expense deductions will be removed. In addition, the three rates which currently apply to the 'cents per kilometre' calculation method will be replaced by one rate of 66 cents. This will apply to all motor vehicles and will be updated by the Commissioner of Taxation. These amendments are expected to increase receipts by $845.0 million over the forward estimates period.

Further details of Government policy decisions are provided in Budget Paper No. 2, Budget Measures 2015‑16.

Parameter and other variations

Since the 2014‑15 Budget, forecast nominal GDP has been revised down substantially over the forward estimates, resulting in weaker expected tax receipts. More than half of this write down in nominal GDP has been a result of weaker than previously expected iron ore values. These revisions to iron ore values have resulted in lower expected taxes from companies. In addition, weaker expected wage growth has led to lower expectations for taxes from individuals and superannuation funds.

These changes have resulted in a downgrade to total tax receipts since the 2014‑15 Budget of $14.0 billion in 2015‑16 and $51.7 billion over the four years to 2017‑18. Excluding GST, tax receipts are expected to be $14.1 billion lower in 2015‑16 and $51.9 billion lower over the four years to 2017‑18.

Relative to the 2014‑15 MYEFO, downgrades to forecast nominal GDP totalling $63 billion over the four years to 2017‑18 have contributed to a write down in tax receipts of $5.9 billion in 2015‑16 and $20.1 billion over the four years to 2017‑18.

Further information on expected tax receipts is provided in Statement 4: Revenue. Analysis of the sensitivity of the receipts estimates to changes in the economic outlook is provided in Statement 7: Forecasting Performance and Scenario Analysis.

Payment estimates

Since the 2014‑15 MYEFO, excluding Senate negotiations, total cash payments for 2015‑16 have decreased by $2.3 billion. The overall impact of spending related decisions (excluding Senate negotiations) have decreased total cash payments by $3.6 billion over the five years to 2018‑19.

Policy decisions

The impact of major policy decisions since the 2014‑15 MYEFO which increase payments include:

  • reversing components of the 2014‑15 MYEFO measure A Strong and Sustainable Medicare, which is expected to increase cash payments by $628 million in 2015‑16 and $2.9 billion over the five years to 2018‑19. The Government will not proceed with changes to GP consultation items announced in the 2014‑15 MYEFO;
  • reversing the 2014‑15 Budget measure Stronger Participation Incentives for Job Seekers under 30 and instead, requiring young people under 25 years of age without significant barriers to employment to actively seek work for a four‑week waiting period before receiving income support, with a net increase in cash payments of $464 million in 2015‑16 ($1.8 billion over the five years to 2018‑19);
  • funding to support families to access affordable child care services, under the Families Package — Child Care — Workforce Participation Stream, which is expected to increase cash payments by $140 million in 2015‑16 ($3.3 billion over the five years to 2018‑19), largely due to a new Child Care Subsidy that will be introduced on 1 July 2017. This will provide a subsidy of up to 85 per cent of the actual fee paid, up to an hourly fee cap, depending on the level of parental income; and
  • funding to support the Families Package — National Partnership Agreement on Universal Access to Early Childhood Education — extension, which is expected to increase cash payments by $125 million in 2015‑16 ($843 million over the three years to 2017‑18). This measure will give a further two cohorts of pre‑school children the opportunity to participate in early childhood education and care through accredited pre‑school programmes.

The impact of major policy decisions which decrease payments include:

  • removing funding for the Victorian East‑West Link from the forward estimates, which is expected to decrease cash payments by $300 million in 2015‑16 ($1.5 billion over the five years to 2018‑19). The Australian Government will provide $3 billion for the East‑West Link to any Victorian Government that proceeds with the project, with this commitment detailed as a Contingent Liability in Statement 8: Statement of Risks;
  • rationalising and streamlining Health programmes, which is expected to decrease cash payments by $121 million in 2015‑16 ($963 million over the five years to 2018‑19), largely by reducing funding for the Health Portfolio Flexible Funds, consolidating and streamlining dental workforce programmes and rationalising other health programmes;
  • consolidating the immigration detention network, which is expected to decrease cash payments by $111 million in 2015‑16 ($555 million over the five years to 2018‑19), due to the planned closure of a number of facilities and a reduction in logistics and service requirements across the detention network; and
  • improving the targeting of Australian Government payments by increasing the assets test thresholds and the withdrawal rate at which pensions are reduced once the threshold is exceeded, which is expected to decrease cash payments by $2.4 billion over the five years to 2018‑19.

Further details of Government policy decisions are provided in Budget Paper No. 2, Budget Measures 2015‑16. The expense estimates provided in Budget Paper No. 2 are in accrual terms and may not align with the payment figures provided in this statement.

Parameter and other variations

This Budget also incorporates some major changes in payments in 2015‑16 as a result of parameter and other variations since the 2014‑15 MYEFO. Major increases include:

  • payments related to the Research and Development Tax Incentive, which are expected to increase by $352 million in 2015‑16 ($1.5 billion over the four years to 2017‑18), largely reflecting a higher than expected number and size of claims for the Research and Development refundable tax offset;
  • payments related to Illegal Maritime Arrival (IMA) management costs, which are expected to increase by $286 million in 2015‑16 ($244 million over the four years to 2017‑18, including an estimated reduction in payments over the two years to 2017‑18), largely reflecting the impact of slower than forecast processing of refugee claims in offshore facilities;
  • payments related to Family Tax Benefit, which are expected to increase by $214 million in 2015‑16 ($824 million over the four years to 2017‑18), largely reflecting the impact of lower than expected wage growth on average payment rates and recipient numbers;
  • payments related to the public sector defined benefit superannuation schemes which are expected to increase by $185 million in 2015‑16 (although a reduction in payments of $153 million is expected over the four years to 2017‑18), largely reflecting an increase in estimated benefit payments offset by higher returns of the funded components from superannuation schemes to the Commonwealth when employees retire; and
  • payments related to Parents Income Support, which are expected to increase by $184 million in 2015‑16 ($925 million over the four years to 2017‑18), largely reflecting revised projected customer numbers based on observed population trends.

Major decreases in payments in 2015‑16 as a result of parameter and other variations since the 2014‑15 MYEFO include:

  • not proceeding with the Paid Parental Leave Scheme, resulting in decreased cash payments of $10.1 billion over the five years to 2018‑19, provisioned for in the Contingency Reserve;
  • payments relating to public debt interest expenses, which are expected to decrease by $247 million in 2015‑16 and by $1.2 billion over the four years to 2017‑18, largely reflecting a reduction in the weighted average cost of borrowing. This is partially offset by a decrease in interest receipts ($167 million over the four years to 2017‑18);
  • payments related to the Income Support for Seniors programme, which are expected to decrease by $177 million in 2015‑16 ($654 million over the four years to 2017‑18), largely reflecting lower than expected average payment rates;
  • payments related to the Income Support for People with a Disability programme, which are expected to decrease by $164 million in 2015‑16 ($660 million over the four years to 2017‑18), largely reflecting lower than expected customer numbers and average payment rates;
  • payments related to the Interest on Overpayment and Early Payment of Tax programme, which are expected to decrease by $150 million in 2015‑16 ($580 million over the four years to 2017‑18), largely reflecting early settlements of disputed tax revenue cases;
  • Child Care Rebate and Child Care Benefit payments, which are expected to decrease by $135 million in 2015‑16 ($552 million over the four years to 2017‑18), largely reflecting lower than expected utilisation of demand driven child care services, both in terms of number of children in child care and hours claimed, following a period of several years of continual upwards variations due to higher than expected growth. From 1 July 2017, the Child Care Rebate and Child Care Benefit will be replaced by the new Child Care Subsidy; and
  • payments related to the Income Support for Carers programme, which are expected to decrease by $129 million in 2015‑16 ($519 million over the four years to 2017‑18), largely reflecting lower than expected recipient numbers.

Consistent with previous budgets, the underlying cash balance has been improved by the regular draw down of the conservative bias allowance. Details of this draw down are provided in the Other Purposes section of Statement 5: Expenses and Net Capital Investment.

Analysis of the sensitivity of payments estimates to changes in the economic outlook is provided in Statement 7: Forecasting Performance and Scenario Analysis.

Fiscal balance estimates

The fiscal deficit is expected to be $33.0 billion (2.0 per cent of GDP) in 2015‑16, which reflects a deterioration of $5.7 billion compared with the 2014‑15 MYEFO. Table 8 provides a reconciliation of the variations in the fiscal balance since the 2014‑15 Budget.

Table 8: Reconciliation of fiscal balance estimates
  Estimates   Projections    
  2014‑15
$m
2015‑16
$m
2016‑17
$m
  2017‑18
$m
  Total
$m
2014‑15 Budget fiscal balance ‑25,855 ‑12,214 ‑6,596   984   ‑43,681
Per cent of GDP ‑1.6 ‑0.7 ‑0.4   0.1    
Changes from 2014‑15 Budget to 2014‑15 MYEFO              
Effect of policy decisions(a) ‑3,395 ‑2,914 ‑618   946   ‑5,981
Effect of parameter and other variations ‑10,555 ‑12,095 ‑10,565   ‑6,966   ‑40,181
Total variations ‑13,950 ‑15,009 ‑11,182   ‑6,020   ‑46,162
2014‑2015 MYEFO fiscal balance ‑39,806 ‑27,223 ‑17,778   ‑5,035   ‑89,842
Per cent of GDP ‑2.5 ‑1.6 ‑1.0   ‑0.3    
Changes from 2014‑15 MYEFO to 2015‑16 Budget              
Effect of policy decisions(a)(b)              
Revenue 45 ‑162 39   463   385
Expenses 669 3,887 1,912   2,276   8,743
Net capital investment ‑31 ‑98 914   132   917
Total policy decisions impact on fiscal balance ‑592 ‑3,951 ‑2,786   ‑1,945   ‑9,275
Effect of parameter and other variations(b)              
Revenue ‑1,823 ‑6,170 ‑7,649   ‑7,459   ‑23,101
Expenses ‑3,232 ‑5,901 ‑5,355   ‑5,771   ‑20,259
Net capital investment 386 1,529 567   567   3,048
Total parameter and other variations impact on fiscal balance 1,023 ‑1,798 ‑2,861   ‑2,255   ‑5,891
2015‑16 Budget fiscal balance ‑39,375 ‑32,972 ‑23,425   ‑9,236   ‑105,008
Per cent of GDP ‑2.5 ‑2.0 ‑1.3   ‑0.5    

(a) Excludes secondary impacts on public debt interest of policy decisions and offsets from the Contingency Reserve for decisions taken.

(b) 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.

Revenue estimates

Changes in accrual revenue are generally driven by the same factors as cash receipts, though differences arise where revenue raised in a given year is not received in that year.

Expense and net capital investment estimates

Movements in accrual estimates and net capital investment over the forward estimates are broadly similar to the movements in cash payments. The key exceptions include:

  • superannuation benefits, where there are differences between the timing of cash payments and accrued expenses as a result of revaluations recommended by the actuary; and
  • the Natural Disaster Relief and Recovery Arrangements, where expenses are recognised in the financial year in which the disaster occurs, rather than when cash payments are made.

Detailed information on expenses and net capital investment can be found in Statement 5: Expenses and Net Capital Investment.

Headline cash balance estimates

The headline cash balance consists of the underlying cash balance, net cash flows from investments in financial assets for policy purposes (for example, the equity funding of NBN Co), and net Future Fund earnings. Table 9 provides further detail of differences between the underlying and headline cash balance estimates of the Australian Government general government sector.

The headline cash balance for 2015‑16 is estimated to be a deficit of $44.8 billion, compared with a deficit of $41.9 billion at 2014‑15 MYEFO. Over the four years to 2018‑19, the headline cash deficit is projected to decline by $27.4 billion to $17.3 billion in 2018‑19.

Table 9: Details of the Australian Government general government sector items between the underlying and headline cash balance estimates
  Estimates Projections    
  2014‑15
$m
2015‑16
$m
2016‑17
$m
  2017‑18
$m
2018‑19
$m
Total
$m
2015‑16 Budget underlying cash balance(a) ‑41,121 ‑35,115 ‑25,836   ‑14,396 ‑6,905   ‑123,372
plus Net cash flows from investments in financial assets for policy purposes                
Student loans ‑6,381 ‑7,926 ‑10,174   ‑11,676 ‑12,988   ‑49,144
NBN investment ‑4,917 ‑7,839 ‑8,326   0 0   ‑21,082
Sale of Medibank Private 5,679 0 0   0 0   5,679
Residential mortgage backed securities 1,980 4,036 0   0 0   6,017
WestConnex 0 ‑226 ‑854   ‑831 ‑88   ‑2,000
Trade support loans ‑72 ‑460 ‑511   ‑563 ‑569   ‑2,174
Asbestos removal in the ACT ‑ Mr Fluffy loose fill asbestos remediation ‑750 ‑250 0   50 50   ‑900
Northern Australia Infrastructure Facility 0 0 ‑935   ‑870 ‑805   ‑2,610
Net other ‑1,039 ‑243 ‑598   ‑94 ‑53   ‑2,027
Total net cash flows from investments in financial assets for policy purposes ‑5,500 ‑12,908 ‑21,397   ‑13,983 ‑14,452   ‑68,240
plus Net Future Fund earnings 3,429 3,258 3,375   3,699 4,037   17,798
2015‑16 Budget headline cash balance ‑43,191 ‑44,764 ‑43,859   ‑24,681 ‑17,320   ‑173,815

(a) Excludes expected net Future Fund earnings.