Table Of ContentMID-YEAR ECONOMIC AND FISCAL OUTLOOK
2012-13
STATEMENT BY
THE HONOURABLE WAYNE SWAN MP
DEPUTY PRIME MINISTER AND TREASURER
OF THE COMMONWEALTH OF AUSTRALIA
AND
SENATOR THE HONOURABLE PENNY WONG
MINISTER FOR FINANCE AND DEREGULATION
OF THE COMMONWEALTH OF AUSTRALIA
© Commonwealth of Australia 2012
ISBN 978-0-642-74855-3
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NOTES
(a) The following definitions are used in this Mid-year Fiscal and Economic Outlook
(MYEFO):
– ‘real’ means adjusted for the effect of inflation;
– real growth in expenses and payments is calculated by the Consumer Price
Index (CPI) as the deflator;
– the Budget year refers to 2012-13, while the forward years refer to 2013-14,
2014-15 and 2015-16; and
– one billion is equal to one thousand million.
(b) Figures in tables and generally in the text have been rounded. Discrepancies in
tables between totals and sums of components are due to rounding:
– estimates under $100,000 are rounded to the nearest thousand;
– estimates $100,000 and over are generally rounded to the nearest tenth of a
million;
– estimates midway between rounding points are rounded up; and
– the percentage changes in statistical tables are calculated using unrounded
data.
(c) For the budget balance, a negative sign indicates a deficit while no sign indicates a
surplus.
(d) The following notations are used:
- nil
na not applicable (unless otherwise specified)
$m millions of dollars
$b billions of dollars
nfp not for publication
(e) estimates (unless otherwise specified)
(p) projections (unless otherwise specified)
NEC/nec not elsewhere classified
(e) The Australian Capital Territory and the Northern Territory are referred to as ‘the
Territories’. References to the ‘States’ or ‘each State’ include the Territories. The
following abbreviations are used for the names of the States, where appropriate:
NSW New South Wales
VIC Victoria
QLD Queensland
WA Western Australia
SA South Australia
TAS Tasmania
ACT Australian Capital Territory
NT Northern Territory
(f) In this paper the term Commonwealth refers to the Commonwealth of Australia.
The term is used when referring to the legal entity of the Commonwealth of
Australia.
The term Australian Government is used when referring to the Government and
the decisions and activities made by the Government on behalf of the
Commonwealth of Australia.
iv
FOREWORD
The Mid-Year Economic and Fiscal Outlook 2012-13 (MYEFO) has been prepared in
accordance with the Charter of Budget Honesty Act 1998. The Charter requires that the
Government provide a mid-year budget report which provides updated information to
allow the assessment of the Government’s fiscal performance against its fiscal strategy.
Consistent with these requirements:
• Part 1: Overview — contains summary information on the key fiscal and economic
indicators and outlook.
• Part 2: Economic outlook — discusses the domestic and international economic
forecasts that underpin the budget estimates.
• Part 3: Fiscal strategy and outlook — provides a discussion of the fiscal strategy
and outlook, in addition to a summary of the factors explaining variations in the
cash flow statement, the operating statement and the balance sheet since the
2012-13 Budget. This part also discusses the sensitivity of the forward budget
estimates to changes in major economic parameters, expenses by function and tax
expenditures.
• Appendix A: Policy decisions taken since the 2012-13 Budget — provides details
of decisions taken since the 2012-13 Budget that affect revenue, expense and capital
estimates.
• Appendix B: Australian Government Budget Financial Statements — provides
financial statements for the general government, public non-financial corporations
and total non-financial public sectors.
• Appendix C: Statement of risks — provides details of general developments or
specific events that may have an impact on the fiscal position, and contingent
liabilities which are costs the government may possibly face, some of which are
quantified.
• Appendix D: Historical Australian Government data — provides historical data
for the Australian Government’s key fiscal aggregates.
v
CONTENTS
FOREWORD .......................................................................................................V
PART 1: OVERVIEW ............................................................................................ 1
Introduction ...................................................................................................................... 1
Economic outlook ............................................................................................................ 2
Returning the budget to surplus ...................................................................................... 7
Fiscal outlook ................................................................................................................ 10
PART 2: ECONOMIC OUTLOOK ..........................................................................1 3
Overview ....................................................................................................................... 13
Domestic economic outlook .......................................................................................... 14
International economic outlook ..................................................................................... 21
Detailed domestic forecasts .......................................................................................... 27
Medium-term economic projections .............................................................................. 31
PART 3: FISCAL STRATEGY AND OUTLOOK ........................................................3 3
Overview ....................................................................................................................... 33
Fiscal strategy ............................................................................................................... 34
Pressures on the fiscal position since the Budget ........................................................ 35
Returning the budget to surplus .................................................................................... 35
Savings .......................................................................................................................... 36
Real growth in payments ............................................................................................... 38
Fiscal outlook ................................................................................................................ 40
Underlying cash balance estimates .............................................................................. 41
Fiscal balance estimates ............................................................................................... 52
Net debt, net financial worth and net worth ................................................................... 57
Medium term ................................................................................................................. 59
ATTACHMENT A ...............................................................................................6 1
Sensitivity of budget estimates to economic developments ......................................... 61
ATTACHMENT B ...............................................................................................6 6
Tax Expenditures .......................................................................................................... 66
vii
ATTACHMENT C ...............................................................................................6 7
Supplementary expenses table and the Contingency Reserve .................................... 67
ATTACHMENT D ...............................................................................................7 2
Australia’s Federal Relations ........................................................................................ 72
Overview of payments to the States ............................................................................. 72
Payments for specific purposes .................................................................................... 73
GST and general revenue assistance ........................................................................... 80
APPENDIX A: POLICY DECISIONS TAKEN SINCE THE 2012-13 BUDGET .............. 155
Revenue Measures ..................................................................................................... 155
Expense Measures...................................................................................................... 185
Capital Measures ........................................................................................................ 283
APPENDIX B: AUSTRALIAN GOVERNMENT BUDGET FINANCIAL
STATEMENTS ................................................................................................. 289
Australian Government Financial Statements ............................................................. 290
Notes to the general government sector financial statements .................................... 301
APPENDIX C: STATEMENT OF RISKS ................................................................ 333
Overview ..................................................................................................................... 333
Details of fiscal risks and contingent liabilities ............................................................ 333
Fiscal risks ................................................................................................................... 335
Contingent liabilities — quantifiable ............................................................................ 336
Contingent liabilities — unquantifiable ........................................................................ 340
APPENDIX D: HISTORICAL AUSTRALIAN GOVERNMENT DATA ........................... 347
viii
PART 1: OVERVIEW
INTRODUCTION
The Government is returning the budget to surplus in 2012-13, notwithstanding a
weaker global economy that has weighed heavily on tax receipts. Returning to surplus
is appropriate given current economic conditions, with the economy forecast to grow
around trend, the unemployment rate forecast to remain low and commodity prices
remaining high by historical standards. Returning to surplus provides ongoing scope
for monetary policy to respond to economic developments and underpins confidence
in Australia’s public finances at a time of global economic uncertainty.
Global growth is expected to be lower than forecast at Budget, as the recession in the
euro area and the subdued recovery in the United States bear on the growth of key
trading partners in the emerging market economies of Asia. While still robust, China’s
economic growth has moderated more than expected at the 2012-13 Budget and by
most official forecasters, reflecting weaker external demand and a deliberate
policy-induced slowing in domestic activity. The euro area debt crisis and the
impending legislated fiscal contraction in the United States (the ‘fiscal cliff’) are adding
to global economic uncertainty and this is likely to continue into 2013.
Despite a weaker global outlook, the fundamentals of the Australian economy remain
strong and the outlook remains positive. The Australian economy continues to
outperform every major advanced economy. While some sectors face challenging
conditions, the economy is expected to grow around trend, underpinned by a surge in
resources investment, strong growth in export volumes and solid growth in household
consumption.
While the outlook for the Australian economy is positive, external factors are weighing
heavily on parts of the economy and tax receipts. The moderation in world
Gross Domestic Product (GDP) growth has contributed to a greater-than-expected
easing in global prices of Australia’s non-rural bulk commodities. This has been the
primary driver of a substantial write-down in total tax receipts of over $20 billion over
the forward estimates.
To return the budget to surplus in 2012-13 and beyond, the Government has made
substantial targeted savings, ensuring that Australia’s public finances remain strong.
These decisions return the budget to surplus ahead of any major advanced economy,
contribute to growing surpluses and improve the long-term sustainability of the
budget.
The Government has continued its commitment over the past few years to find the
savings to fund new priorities and maintain Australia’s strong fiscal position. This has
been achieved in the face of a substantial write-down in tax receipts of almost
$160 billion over the five years since the beginning of the Global Financial Crisis (GFC).
1
Part 1: Overview
Since mid-2009 the Government has more than offset all new spending. Savings in this
Mid-Year Economic and Fiscal Outlook (MYEFO) total $16.4 billion, and have funded
initiatives such as dental reform, and will help make room for the delivery of new
priorities in future years.
Maintaining Australia’s strong public finances means getting the long-term settings
right, so that the Australian community can take advantage of the significant
opportunities of the Asian century from a position of strength. The Government has
made clear it will pursue significant new priorities, including school funding reform
and a National Disability Insurance Scheme (NDIS). The Government continues to
make enduring savings that will help make room for these national priorities in the
medium term. The Government will identify further savings to help fund these
priorities.
The underlying cash surplus is expected to be $1.1 billion (0.1 per cent of GDP) in
2012-13, growing to $2.2 billion (0.1 per cent of GDP) in 2013-14. Table 1.1 presents the
fiscal and underlying cash balances for 2012-13 to 2015-16.
Returning to surplus in 2012-13 is appropriate given current economic conditions,
reflecting a targeted approach to savings that minimises the impacts of the fiscal
consolidation on the economy, and on vulnerable people. The Government will
continue to balance these considerations, and will continue to ensure its approach to
savings is appropriate for the economic conditions and is fair on the community.
Table 1.1: Budget aggregates
Estimates
2012-13 2013-14
Budget MYEFO Budget MYEFO
Underlying cash balance($b)(a) 1.5 1.1 2.0 2.2
Per cent of GDP 0.1 0.1 0.1 0.1
Fiscal balance($b) 2.5 1.2 2.6 4.3
Per cent of GDP 0.2 0.1 0.2 0.3
Projections
2014-15 2015-16
Budget MYEFO Budget MYEFO
Underlying cash balance($b)(a) 5.3 3.3 7.5 6.4
Per cent of GDP 0.3 0.2 0.4 0.4
Fiscal balance($b) 7.0 6.9 9.5 9.8
Per cent of GDP 0.4 0.4 0.5 0.5
(a) MYEFO figures report net Future Fund earnings, whereas Budget figures report gross Future Fund
earnings. This is further explained in Appendix B.
ECONOMIC OUTLOOK
Against a weaker international backdrop and the structural change taking place
domestically, the Australian economy has continued to grow strongly and outperform
every major advanced economy. The unemployment rate has remained low and
2
