Australian Government, 2011‑12 Budget

Statement 3: Fiscal Strategy and Outlook

The cost of recent natural disasters and the weaker outlook for tax receipts have had a significant impact on the fiscal outlook for 2010‑11 and 2011‑12. Despite these challenges, the Government's strict adherence to the fiscal strategy means that the budget is on track to return to surplus in 2012‑13, well ahead of Australia's peers.

The Government is supporting affected communities to rebuild after the recent natural disasters. While the Government has fully funded the costs of its contribution to the recovery effort over the forward estimates, the underlying cash balance will be affected as a significant share of the costs are incurred in 2010‑11 and 2011‑12.

Natural disasters have also affected tax receipts in the near term because production and profits have been lost. In addition the legacy effects of the global financial crisis have been greater than expected, as companies utilise capital losses. Overall, tax receipts have been revised down by $16.3 billion over 2010‑11 and 2011‑12 relative to the Mid‑Year Economic and Fiscal Outlook 2010‑11 (MYEFO).

Notwithstanding the immediate pressures on the budget, the Government will return the budget to surplus in 2012‑13. Returning the budget to surplus will ensure the Government does not draw on resources needed to support the growing investment in the resources sector and the expansion of the economy more generally. The fiscal consolidation will strengthen the long term position of the budget and support Australia's capacity to respond to unanticipated shocks, including those related to the uncertain global economic outlook.

This means that the budget is projected to return to surplus only three years after the deficit peaked during the global financial crisis, despite the challenges faced this year and next due to natural disasters and the legacy effects of the crisis. This will be the fastest fiscal consolidation in the 44 years for which data are available.

The Government is delivering the return to surplus through its ongoing commitment to the fiscal strategy. The Government has paid for its new spending, including the cost of the recent natural disasters, by making $22 billion in saving decisions. Over two thirds of savings are reductions in payments. This restraint has resulted in real growth in spending averaging 1 per cent a year over five years for the first time since the 1980s.

Net debt is expected to peak at 7.2 per cent of GDP in 2011‑12, higher than previously anticipated, reflecting the impact of natural disasters and weaker tax receipts. Still, the Australian Government's balance sheet remains one of the strongest in the developed world, and its level of net debt in 2011‑12 is less than one tenth the average of the major advanced economies in 2011.

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