The Crest of the Commonwealth of Australia Treasury Portfolio Ministers
Picture of Wayne Swan

Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

5 November 2008

NO.121

Mid-Year Economic and Fiscal Outlook 2008-09

The Mid-Year Economic and Fiscal Outlook 2008-09 (MYEFO) released today shows that the Budget has felt the full force of the global financial crisis.

As a consequence of the global financial crisis, tax receipts are expected to be around $40 billion lower over the forward estimates than anticipated at the time of the May Budget.

Global economic conditions have changed dramatically in recent months as the global financial crisis has entered a dangerous new phase. More than 30 financial institutions around the world have failed or been bailed out, and globally stock markets have suffered significant losses. All members of the G7 group of advanced economies have now experienced negative growth at some time during 2008.

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.

In the face of these major challenges arising from the global financial crisis, the Government is 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).

However, the budget surplus projections are clearly much lower than forecast at the time of the May Budget and reflect the dramatic impact, particularly from 2009-10 onwards, of the recent escalation in the global financial crisis.

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.

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.

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.

While Australia is clearly not immune from the effects of the global financial crisis and the global downturn, we are better placed than most other countries to withstand the fallout.

The Government has taken decisive action to strengthen the economy and support Australians during these difficult global times, in particular by securing Australia's banking system through guarantees of authorised deposit-taking institutions deposits and wholesale funding and our $10.4 billion Economic Security Strategy.

The Government remains prepared to take the tough decisions necessary to protect our economy during the global financial crisis, and to implementing our long term agenda in the most responsible way.

The Mid-Year Economic and Fiscal Outlook is available at: http://www.budget.gov.au