Treasurer Wayne Swan today released the Government’s Mid-Year Economic and Fiscal Outlook (MYEFO) for 2008-09. The MYEFO has been much anticipated as it indicates the extent of the effects of the global financial crisis on the Budget.
The Treasurer explained that ‘the sharp deterioration in the global economic outlook, and the resulting fallout for the Australian economy, is forecast to result in more moderate GDP and employment growth.’
- Real GDP growth has been revised down to 2 per cent in 2008-09, ¾ of a percentage point lower than expected at Budget.
- The unemployment rate is forecast to rise to 5 per cent by the June quarter 2009 and 5 ¾ per cent by the June quarter 2010 as the impacts of the global financial crisis flow through.
- Growth is forecast to remain subdued at 2¼ per cent in 2009‑10. The G7 economies are expected to be in recession in 2008.
The MYEFO shows that as a consequence of the global financial crisis, expected taxation receipts have been revised down by $4.9 billion in 2008-09, $12.2 billion in 2009-10, 12.4 billion in 2010-11 and $7.9 billion in 2011-12. This totals approximately $40 billion lower over the forward estimates than was anticipated at the time of the May Budget.
These downward revisions to revenue are particularly the result of lower forecasts of capital gains tax due to the recent dramatic falls in global equity markets. These revisions also reflect the substantial negative impacts on company profits of the credit market turmoil, weaker global growth, and from 2009-10, falling terms of trade.
-Treasurer Wayne Swan
Notwithstanding significant challenges developing from the global financial crisis, the Australian economy is expected to continue to grow in 2008‑09. The Government is also continuing to budget for surpluses in 2008‑09 and across the forward estimates.
- An underlying cash surplus of $5.4 billion is forecast for 2008-09 (0.4 per cent of GDP).
- In accrual terms, the fiscal balance is expected to record a $5.8 billion surplus in 2008-09 (0.5 per cent of GDP).
- Cash payments in 2008‑09 are estimated to be $10.6 billion higher than at the 2008‑09 Budget. This largely reflects new policy decisions of $11.0 billion including $10.4 billion for the Economic Security Strategy.
Table 1.2: Major economic parameters (a)
- All parameters except the CPI are year average percentage changes. The CPI is through the year growth to the June quarter. As in previous budget documents, projections assume a two-year step down in non‑rural commodity prices.
Almost all of the decrease in the surplus beyond 2008-09 is due to the significant reductions in revenue associated with the global financial crisis. Policy decisions have had relatively little impact on estimated expenses and revenues in these years.
The Government has taken decisive action to strengthen the economy throughout the global economic crisis. For further details see Hawker Britton’s paper on the Government’s response to the Global Financial Crisis.
The Mid-Year Economic and Fiscal Outlook is available at: http://www.budget.gov.au/2008-09/content/myefo/html/index.htm.