Mid-Year Economic and Fiscal Outlook 2011-12
Today, Treasurer the Hon. Wayne Swan MP and Minister for Finance and Deregulation Senator the Hon. Penny Wong, released the Government’s 2011-12 Mid-Year Economic and Fiscal Outlook (MYEFO).
The purpose of the MYEFO is to report updated information on the Government’s fiscal performance as set out in the current Budget Papers. It is designed to take into account, to the fullest extent possible, all Government decisions and global economic circumstances that may have had a material impact on the fiscal and economic outlook of the country.
Despite the ongoing deterioration in global economic and financial conditions, the MYEFO forecasts a return to surplus in 2012-13. Real Gross Domestic Product (GDP) is forecast to grow 3.25% in 2011-12 and 2012-13, with Nominal GDP forecast to grow 6.25% in 2011-12 and 5% in 2012-13
Employment is projected to grow more slowly than forecast at the time of the Budget, resulting in a forecast unemployment rate of 5% in 2012-13. The Treasurer has indicated that employment is still projected to grow by approximately 300,000 jobs over the forward estimates.
The underlying cash deficit has been revised up to $37.1 billion, largely as a result of
- a $4.8 billion reduction in tax receipts (including GST),
- increased payments of $2.3 billion for natural disaster recovery payments,
- increased payments of $1.4 billion for accelerated delivery of infrastructure projects, and
- $2.9 billion in support for families as part of the Clean Energy Future package.
Budget aggregates
| Estimates | ||||
| 2011-12 | 2012-13 | |||
| Budget | MYEFO | Budget | MYEFO | |
| Underlying cash balance ($b)(a) | -22.6 | -37.1 | 3.5 | 1.5 |
| Per cent of GDP | -1.5 | -2.5 | 0.2 | 0.1 |
| Fiscal Balance ($b) | -20.3 | -32.4 | 4.0 | 4.7 |
| Per cent of GDP | -1.4 | -2.2 | 0.3 | 0.3 |
| Projections | ||||
| 2013-14 | 2014-15 | |||
| Budget | MYEFO | Budget | MYEFO | |
| Underlying cash balance ($b)(a) | 3.7 | 1.9 | 5.8 | 3.1 |
| Per cent of GDP | 0.2 | 0.1 | 0.3 | 0.2 |
| Fiscal Balance ($b) | 3.2 | 4.2 | 8.5 | 6.4 |
| Per cent of GDP | 0.2 | 0.3 | 0.5 | 0.4 |
(a) Excludes expected Future Fund earnings
Source: Treasury
Major economic parameters (a)(b)
| Forecasts | Projections | |||
| 2011-12 | 2012-13 | 2013-14 | 2014-15 | |
| Real GDP | 3 ¼ | 3 ¼ | 3 | 3 |
| Employment | 1 | 1 ½ | 1 ½ | 1 ½ |
| Unemployment rate | 5 ½ | 5 ½ | 5 | 5 |
| Consumer Price Index | 2 ¼ | 3 ¼ | 2 ½ | 2 ½ |
| Nominal GDP | 6 ¼ | 5 | 5 ¼ | 5 ¼ |
- Real and nominal GDP are year?average growth. Employment and CPI are through?the?year growth to the June quarter. The unemployment rate is the rate in the June quarter.
- The forecasts incorporate the introduction of a carbon price on 1 July 2012.
Source: Treasury
The revised economic outlook has reduced projected tax receipts by in excess of $20 billion over the forward estimates. The projected tax-to-GDP ratio in 2012-13 remains significantly below the cap specified in the Government’s fiscal strategy, which puts more weight on cutting spending in order to return the budget surplus.
The Government has found net savings of $6.8 billion. Spending cuts announced in the MYEFO include:
- A one-off increase of 2.5% in the efficiency dividend for most of the Commonwealth public service in 2012-13; and a 20% reduction in funding for capital expenditure.
- Reduction of the business tax fuel credit entitlement for liquid and gaseous fuels through the fuel tax system.
- Reduction of the maximum superannuation co-contribution for low- and middle-income earners from 1 July 2012.
- A decrease in the Baby Bonus to $5000 per child from 1 September 2012, and pausing indexation from 1 July 2012.
- Removal of elements of Higher Education Reward Funding.
- Rephasing of the Reward Payment for School Improvement and the Reward Payment for Great Teachers.
- Making the payment of Family Tax Benefit Part A conditional on full immunisation for children.
- Reform of Fringe Benefits Tax to stop rorting of the living-away-from-home allowance and benefits from 1 July 2012.
- Further reduction of the Dependent Spouse Tax Offset.
- Changes to the fees structure for visa applications, including a decrease for student visas and an increase for a range of Skills and Business visas.
The Government will also defer previously announced tax reforms by one year in order to ensure the return to surplus. These include:
- The introduction of a standard deduction for work-related expenses will now begin on 1 July 2012.
- The introduction of the 50 per cent tax discount for interest income will now begin on 1 July 2013.
- The phase-down in interest withholding tax for financial institutions will now begin in 2014-15.
- The introduction of the new tax system for managed investment trusts will now begin on 1 July 2013.
The full MYEFO report is available here.
For more information, contact your Hawker Britton consultant.