Mid-Year Economic and Fiscal Outlook 2010-11
Yesterday Wayne Swan released the 2010-11 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.
The MYEFO forecast slightly stronger growth, falling unemployment and rising inflation next year, while the Budget deficit for 2010-11 was projected to increase from a previously stated $40.8bn to $41.5bn. The surplus for 2013-14 is now projected to be lower at $3.3bn and net debt is now expected to peak at 6.4 per cent of GDP in 2011-12. Inflation is forecast to be slightly higher in 2011-12, at the high end of the RBA target band, at 3 per cent.
These changes partly reflect the lower revenue take of the government, with total tax receipts down $9.7 billion over the four years to 2013-14. This is due to lower company tax revenues caused by lower incomes for businesses in export oriented and import competing industries ultimately due to the appreciating Australian dollar. This affects the proposed Mineral Resource Rent Tax (MRRT), with forecast receipts declining $3.1 billion over 2012-13 and 2013-14.
While the MYEFO acknowledges various global economic uncertainties, Treasury forecasts the world economy is to grow at a solid annual rate of 4 – 4.75 per cent. Treasury expects Australia’s major trading partners in Asia to continue driving growth and China and India to achieve a ‘smooth transition to growth rates that are more sustainable in the medium term’.
The MYEFO notes, “as fiscal stimulus is being withdrawn, private-sector led growth is taking hold, with business investment and commodity exports as the key drivers of growth…The withdrawal of the fiscal stimulus started to detract from economic growth in the March quarter 2010, and is expected to reduce real GDP growth by 1 percentage point in 2010-11 and ½ of a percentage point in 2011-12.”
The Government has continued to offset all new spending, including in relation to spending on election commitments. This ensures the Government is able to deliver on its fiscal strategy, with annual real spending growth held to less than 2 per cent.
Policy decisions made since the election have increased expenses by $217 million in 2010-11 and $1.5bn over the forward estimates. Spending cuts over the four years to 2013-14 total $1.1bn.
Below is a summary of the key economic parameters released yesterday and those key parameters at the 2010-11 Budget (last May), as well as the key policy decisions the Government has made since the pre-election Economic and Fiscal Outlook (which must be released within ten days of the issue of a writ for a general federal election).
|Economic Parameters at the 2010-11 MYEFO|
|2010-11 Forecast||2011-12 Forecast||2012-13 Projection||2013-14 Projection|
|Real GDP Growth||3.25||3.75||3||3|
|Nominal GDP Growth||9||5||5.25||5.25|
|(Previous) Economic Parameters at the 2010-11 Budget|
|2009-10 Forecast||2010-11 Forecast||2011-12 Forecast||2012-13 Projection||2013-14 Projection|
|Real GDP Growth||2||3.25||4||3||3|
|Nominal GDP Growth||2.75||8.5||5.75||5.5||5.5|
Policy decisions affecting government tax revenue
Policy decisions since the Pre-election Economic and Fiscal Outlook (PEFO) have had no impact on tax revenue in 2010-11 and have increased tax revenue by $531 million over the forward estimates.
Major tax revenue policy decisions include:
- Tax breaks for green buildings, reducing tax revenue by $135 million over the forward estimates.
- Revisions to the 50 per cent tax discount for interest income, increasing tax revenue by $670 million over the forward estimates.
Policy decisions since PEFO have increased non-taxation revenue by $318 million in 2010-11 and $496 million over the forward estimates.
Major non-taxation revenue policy decisions include:
- A special dividend of $300 million in 2010-11 from Medibank Private Limited which will be paid from excess reserves.
Policy decisions resulting in increased expenses
Policy decisions since PEFO have increased expenses by $217 million in 2010-11 and $1.5 billion over the forward estimates.
Major policy decisions include:
- The establishment of a Priority Regional Infrastructure Program ($600 million over the three years from 2011-12 and $800 million in total). Funding will be provided for transport, community infrastructure projects and economic infrastructure following consultation with local communities.
- The introduction of Medicare Benefits Schedule rebates for electronically delivered specialist consultations at a cost of $352 million over the four years from 2010-11.
- The Taking Action to Tackle Suicide package which provides $274 million over four years from 2010-11 to tackle suicide and promote better mental health in the community.
- Funding of $22 million in 2010-11 ($313 million over four years) through the Renewable Energy Future Fund for a number of specific measures to support renewable energy, enhance the take up of energy efficiency and to reduce Australia’s carbon emissions. This funding will be met from the existing provision for the Renewable Energy Future Fund.
- Funding from the Health and Hospitals Fund Regional Priority Round of $150 million in 2010-11 ($315 million over three years), reflecting up to $240 million for the expansion of Royal Hobart Hospital, and up to $75 million for the expansion of the Port Macquarie Base Hospital. This is in addition to an upfront contribution to the Royal Hobart Hospital of $100 million in 2010-11 to enable construction of a Women’s and Children’s Hospital.
- Trade Apprentice Income Bonus scheme costing $29 million in 2010-11 ($281 million over four years) to increase the bonuses available to apprentices under the Tools for Your Trade Program.
These policy decisions are partly offset by savings, including reductions in funding for:
- The Renewable Energy Bonus Scheme — Solar Hot Water Rebate by $75 million in 2010-11 ($150 million over two years to 2011-12).
- Whole-of-government advertising, achieving savings of $44 million in 2010-11 ($60 million over four years).
- Projects funded from the Building Australia Fund for the Victorian Regional Rail Link of $320 million in 2012-13 and $80 million in 2013-14, with a corresponding increase in funding in 2014-15.
Policy decisions affecting net capital investment
Policy decisions since PEFO have increased net capital investment by $164 million in 2010-11 but decreased net capital investment by $336 million over the forward estimates.
Major policy decisions include:
- The bringing forward and reallocation of $250 million of funding from 2013-14 to 2010-11 and 2011-12 under the Water for the Future package for the purchase of water entitlements, from willing sellers, in the Murray-Darling Basin.
- Additional funding of $55 million in 2010-11 for the commissioning of two new immigration detention facilities to accommodate irregular maritime arrivals.
- The removal from the Contingency Reserve of the provision for the Information and Communication Technology Business as Usual Reinvestment Fund of $40 million ($448 million over the forward estimates).
It is important to note the policy decisions MYEFO deals with are primarily those that have financial impacts in the current financial year or that require legislative approval or agreement with third parties. Those commitments with financial impacts that do not commence until 2011-12, or where implementation details are still being finalised, will be progressed in the 2011-12 Budget.
The full detail of all policy decisions made since the election are in Appendix A of the MYEFO and available on its own here.
The full MYEFO report is available here: