This statement summarises the main budget aggregates for the Australian Government general government sector.
The fiscal outlook for the Australian Government remains positive, with an underlying cash surplus of $2.4 billion. Across the forward estimates period, the Government has maintained the budget in surplus after providing for its More help for families package comprising $19.2 billion in new assistance to families, $14.7 billion in structural tax reform, and $2.7 billion in incentives for saving for retirement.
Further reductions in net debt over the forward years are expected as the budget remains in surplus.
The fiscal outlook for the Australian Government remains positive, with an underlying cash surplus projected in 2004-05. Across the forward estimates period, the Government has maintained the budget in surplus after providing for its More help for families package comprising $19.2 billion in new assistance to families, $14.7 billion in structural tax reform, and $2.7 billion in incentives for saving for retirement.
An underlying cash surplus of $2.4 billion is estimated for 2004-05, compared to $3.8 billion at the Mid-Year Economic and Fiscal Outlook 2003-04 (MYEFO). Underlying cash surpluses are projected to continue across the forward estimates.
In accrual terms, a fiscal surplus in 2004-05 of $0.7 billion is now forecast compared to $1.6 billion at MYEFO. Fiscal surpluses are expected to continue across the forward estimates.
Table 1: Australian Government general government sector budget aggregates(a)
- All estimates are based on Government Finance Statistics (GFS) standards, but with goods and services tax (GST) revenue collected on behalf of the States and Territories netted off revenue and expenses.
The downward revision of $0.9 billion in the 2004-05 fiscal surplus since MYEFO largely reflects the impact of the Government’s More help for families package ($5.3 billion in 2004-05) and other policy initiatives, partly offset by higher than expected revenue from companies, superannuation funds and income tax withholding.
Table 2 provides a reconciliation of the fiscal balance estimates between the 2003-04 Budget, the 2003-04 MYEFO and the 2004-05 Budget.
Table 2: Reconciliation of 2003-04 Budget, 2003-04
2004-05 Budget fiscal balance estimates(a)
- 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.
- Excluding the public debt net interest effect of policy measures.
Variations in revenue estimates
Total revenue for 2004-05 has been revised up by $4.3 billion since MYEFO. This is largely a consequence of a strong parameter-driven increase in expected revenue from companies, superannuation funds and also income tax withholding partly offset by lower than expected customs duty.
Total tax revenue in 2004-05 has increased by $4.2 billion since MYEFO.
- Income tax withholding has been increased by $720 million, reflecting solid wages growth on top of strong employment and the introduction of the first round of income tax cuts commencing on 1 July 2004.
- Company tax revenue has been revised up by $1.8 billion, reflecting a stronger outlook for company profits.
- Superannuation contributions and earnings taxation revenue has been revised up by $930 million. However, the one-off impact of the Government’s decision to extinguish its liabilities to the Telstra and Australia Post superannuation schemes with a payment of $4.6 billion accounts for $610 million of this increase.
- Customs duty revenue has been revised down by $490 million, reflecting the impact of the higher exchange rate on the price of imports as well as tariff reductions under the Australia-United States Free Trade Agreement.
- Other individuals revenue has been revised up by $170 million, reflecting higher profitability of small business enterprises.
- Petroleum excise revenue had been revised up by $250 million, reflecting a higher crude oil price.
Policy decisions taken since the 2003-04 MYEFO are expected to reduce revenue by around $1.8 billion in 2004-05 and around $3.9 billion in 2005-06. The major policy decisions impacting on revenue over the four year period 2004-05 to 2007-08 are outlined below.
- The personal income tax cuts taking effect from 1 July 2004 and 1 July 2005 will reduce tax revenue by $1.9 billion in 2004-05, $3.8 billion in 2005-06, and $14.7 billion over the forward estimates period.
- The further reductions in the superannuation surcharge rate in 2004-05, 2005-06 and 2006-07 will reduce revenue by $610 million over the forward estimates period.
- Additional funding over four years for the Australian Taxation Office for increased compliance activities is expected to result in increased taxation revenue of $251 million in 2004-05 and $1.1 billion over the forward estimates period.
- The Australia-United States Free Trade Agreement, expected to come into force in January 2005, will reduce tariff revenue by $190 million in 2004-05 and around $1.5 billion over the forward estimates period.
- The application of withholding tax to certain payments made to foreign residents will increase taxation revenue by $125 million in 2004-05 and $540 million over the forward estimates period.
- The introduction of a new $1 million threshold of wholesale value for wine producers will reduce wine equalisation tax revenue by $58 million in 2004-05 and $338 million over the forward estimates period.
In 2003-04, revenue has been revised up by $3.5 billion since MYEFO reflecting significantly higher revenue from company tax and improvement in income tax withholding.
More detailed information on revenue can be found in Statement 5. A full description of all policy measures since MYEFO can be found in Budget Paper No. 2, Budget Measures 2004-05.
Variations in expense estimates
Since MYEFO, estimated expenses for 2004-05 have increased by $4.7 billion reflecting the impact of new policy decisions of $6.2 billion, partly offset by parameter and other variations of $1.5 billion.
Major new expense policy decisions affecting 2004-05 include $3.4 billion ($19.2 billion over five years) for the Government’s More help for families package, including:
- $2.5 billion to increase the rate of Family Tax Benefit (A) by $600 per child a year along with a reduction in the income test taper rate;
- $414 million for the relaxation of the income test for Family Tax Benefit (B); and
- $559 million for the introduction from 1 July 2004 of a new Maternity Payment.
Other new policy decisions affecting 2004-05 include:
- $254 million in 2004-05 ($2.2 billion over five years from 2003-04) in additional funding for the Investing in Australia’s Aged Care: More Places, Better Care package to improve the viability of aged care services and to assist financially disadvantaged residents with their accommodation costs;
- $127 million in 2004-05 ($543 million over the four years) for enhancements to MedicarePlus including improved access to the safety net, the increased bulk-billing incentive and two new Medicare Benefits Schedule items for services provided by allied health professionals and dentists;
- $165 million in 2004-05 for continuing assistance to the Solomon Islands Government for a range of activities including the restoration of law and order and to support broad ranging reforms;
- $157 million in 2004-05 ($612 million over five years from 2003-04) for a range of national security measures under the Investing in Australia’s Security package;
- $146 million in 2004-05 ($717 million over five years from 2003-04) to the Australian Federal Police to provide management, infrastructure and capacity building assistance to the Royal Papua New Guinea Constabulary; and
- $125 million in 2004-05 ($132 million over three years) for the Australian Defence Force’s contribution to Iraqi stabilisation and reconstruction.
In 2004-05, parameter and other revisions have reduced forecast expenses by $1.5 billion, largely reflecting:
- a $426 million reduction in estimated Family Tax Benefit expenses, primarily the result of higher than expected incomes reducing the expected number of recipients eligible for payments;
- a $335 million fall in anticipated Newstart Allowance expenses, largely due to the stronger labour market reducing the expected number of unemployment benefit recipients;
- a $122 million reduction in Child Care Benefit expenses, largely due to an increase in the proportion of outside school care expected to be used, combined with higher than previously forecast incomes of recipients leading to lower than estimated average rates of payment; and
- the regular draw-down of the conservative bias allowance reducing estimated expenses by around $925 million each year from 2004-05.1
Offsetting these reductions in estimated expenses in 2004-05 are:
- a $266 million increase in expenses for the Pharmaceutical Benefits Scheme, arising from continued legislative delays by the Senate in passing the proposed increases in the Pharmaceutical Benefits Scheme co-payment measure announced in the 2002-03 Budget;
- a $216 million increase in Defence expenses reflecting the flow on effect of an increase in the non-farm GDP deflator in 2003-04, which is used to index Defence operating expenses; and
- a $183 million increase in personal benefit expenses due to the flow on effect of an upwards revision to forecast Male Total Average Weekly Earnings growth in 2003-04, reflecting the Government’s ongoing commitment to maintain selected pensions at 25 per cent of Male Total Average Weekly Earnings.
In 2003-04, estimated expenses have increased by $4.3 billion since MYEFO. This largely reflects new spending of $6.0 billion in 2003-04 including spending of $2.2 billion for the $600 payment to all Family Tax Benefit (A) eligible families under the More help for families package, $513 million for a one-off grant to aged care providers as part of the Investing in Australia’s Aged Care: More Places, Better Care package, $255 million for a one-off lump sum payment to eligible carers, and a $450 million grant to Australian Rail Track Corporation under AusLink.
This new spending in 2003-04 is partly offset by a reduction in Defence expenses of $500 million resulting from the reallocation of Defence Capability Plan expenditure to beyond the forward years, a reduction in Budget Balancing Assistance to the States of $327 million reflecting increased GST receipts, and a $307 million reduction in drought assistance, largely reflecting lower than anticipated expenditure on Exceptional Circumstances interest rate relief. These variations have been partly offset by the regular draw-down of the provision for underspends.
More detailed information on expenses can be found in Statement 6. A full description of all policy measures since the MYEFO can be found in Budget Paper No. 2, Budget Measures 2004-05.
Variations in net capital investment estimates
In 2004-05, forecast net capital investment has increased by $463 million since the 2003-04 MYEFO. This increase represents the combined effect of:
- new policy decisions of $189 million, including $85 million for national security measures under the Investing in Australia’s Security package, $39 million for the refurbishment of Anzac Park East and West, and $20 million for the redevelopment of detention facilities at Villawood and Maribrynong and the upgrade of the Baxter facility; and
- parameter and other variations of $274 million, largely due to a projected increase in net housing investment by the Defence Housing Authority, reflecting higher than expected demand from defence personnel.
In 2003-04, estimated net capital investment has increased by $222 million, largely reflecting $114 million in capital funding to ensure Australia’s preparedness to protect against the threat of Avian flu.
More detailed information on net capital investment can be found in Statement 6. A full description of all policy measures since the MYEFO can be found in Budget Paper No. 2, Budget Measures 2004-05.
In 2004-05, an underlying cash surplus of $2.4 billion is now expected, compared with the MYEFO estimate of $3.8 billion. The change in 2004-05 is largely due to the same variations as those impacting on the fiscal balance. The estimated underlying cash surplus for 2003-04 remains largely unchanged while the underlying cash surpluses for the forward estimates have been revised downwards.
Table 3 provides a summary of Australian Government general government sector cash flows.
Table 3: Summary of Australian Government general government sector cash flows(a)
- Cash flows are derived from the accrual GFS framework excluding GST.
- Equivalent to cash receipts from the sale of non-financial assets in the GFS cash flow statement.
- Equivalent to cash payments for purchases of new and second-hand non-financial assets in the GFS cash flow statement.
- 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.
- Under the cash budgeting framework, these cash flows were referred to as ‘net advances’.
Table 4 provides a reconciliation of the variations in the underlying cash balance estimates.
Table 4: Reconciliation of Australian Government general government sector underlying cash balance estimates
- Excludes the public debt net interest effect of policy measures.
While the 2004-05 underlying cash balance has decreased by $1.4 billion since the MYEFO, the estimated fiscal balance has decreased by only $0.9 billion. This difference primarily reflects a $0.8 billion increase in accrual taxation revenue relative to taxation receipts due to a reassessment of the expected level of taxation liabilities identified but not expected to be received in 2004-05.
Headline cash balance
A headline cash surplus of $1.0 billion is now forecast for 2004-05 compared with a surplus of $2.9 billion expected at MYEFO. The decrease in the headline cash surplus estimate since MYEFO largely reflects the decrease in the underlying cash balance.
In addition to the lower estimated underlying cash surpluses, the headline cash balance estimate for 2005-06 is reduced compared to MYEFO because of postponement in the expected sale of the Australian Government’s remaining shareholding in Telstra.
With the budget remaining in cash surplus in 2004-05 and the forward years, further falls in net debt are expected. From its peak of 19.1 per cent of GDP in 1995-96, net debt is estimated to decrease to $24.7 billion (2.9 per cent of GDP) by the end of 2004-05. Net interest payments are also expected to fall over the forward estimates.
Table 5 and Chart 1 provide a summary of Australian Government general government sector net worth, net debt and net interest payments.
Table 5: Australian Government general government sector net worth, net debt and net interest payments
- Net debt equals the sum of deposits held, advances received, government securities, loans and other borrowing, minus the sum of cash and deposits, advances paid, and investments, loans and placements.
- Includes the impact of the further sale of the Australian Government’s shareholdings in Telstra.
- Australian Government cash interest payments less cash interest receipts. The 2005-06 projections include the recognition in cash terms of the capital growth on inflation indexed bonds maturing in that year.
Chart 1: Australian Government general government
sector net debt and
net interest payments
Source: Data are from ABS Cat. No. 5513.0, Australian Government Final Budget Outcomes and Treasury estimates.
Australia’s net debt is at low levels and is projected to fall over the forward estimates period. The level of Australia’s net debt compares very favourably with other industrialised economies. The ratio of Australia’s total general government sector net debt to GDP is among the lowest in the OECD, and is considerably lower than in Europe, Japan and the United States (see Statement 1).
While declining over the forward estimates, the net debt estimates are higher than anticipated at MYEFO. This reflects a deferral in further sales of the Australian Government’s shareholding in Telstra, payments to the Telstra Superannuation Scheme in 2003-04 and the Australia Post Superannuation Scheme in 2004-05 to extinguish Australian Government liabilities to the funds, and a reduction in the fiscal profile in 2004-05 to 2006-07.
Having peaked at $8.4 billion in 1996-97, net interest payments are expected to decline to $2.9 billion in 2004-05, representing annual savings in interest payments of around $5.5 billion.
Net worth is expected to improve from -$43.5 billion in 2003-04 to -$37.4 billion in 2007-08, mainly reflecting the cumulative surpluses in the forward estimates.
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1 The forward estimates include an allowance for the established tendency of existing government policy (particularly demand driven programmes) to be higher than estimated in the forward years. This allowance known as the conservative bias allowance, is progressively reduced so that the budget year conservative bias allowance is zero by Budget night. The conservative bias allowance is a technique to provide for more reliable forward estimates.