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

11 May 2010

NO.040

Economic and Fiscal Background to the 2010-11 Budget

The 2010-11 Budget shows the Australian economy is emerging from the global recession in an enviable position, having outperformed every other advanced economy.

The economy grew by 1.4 per cent during 2009 – a full 4½ percentage points above the average of the advanced economies.

The Government's fiscal strategy and the success of monetary and fiscal stimulus will help the budget return to surplus three years ahead of schedule in 2012-13, ahead of any major advanced economy.

This represents the fastest fiscal consolidation since at least the 1960s, and has been achieved without increasing tax as a share of GDP above the 2007-08 level the Government inherited.

The Budget also shows we are meeting our commitment to restrain growth in real spending to 2 per cent until the budget returns to surplus. We offset all new spending over the forward estimates.

A small surplus is forecast in 2012-13, and budget deficits in earlier years are lower. The budget deficit of $40.8 billion (2.9 per cent of GDP) for 2010-11 is $5.9 billion less than the forecast in the Mid-Year Economic and Fiscal Outlook (MYEFO), and $16.3 billion less than expected one year ago.

Net debt is now expected to peak lower and earlier than previously expected at 6.1 per cent of GDP in 2011-12, half the level expected a year ago and well below that of every other major advanced economy.

Economic stimulus, together with the cooperation and resilience of the Australian people, has also led to remarkable results in Australia's labour market. Our unemployment rate, already the second lowest compared to the major advanced economies, is set to fall further, to 4¾ per cent in 2011‑12.

The Australian economy is set to remain a world leader, with strong growth of 3¼ per cent forecast in 2010-11, rising to 4 per cent in 2011-12 as private sector activity continues to recover from the downturn.

A healthy recovery in business investment is expected and exports are recovering, underpinned by high levels of business confidence. Incomes are set to pick-up in line with a strong labour market and recovery in business profits.

As private sector activity builds momentum, fiscal stimulus is being withdrawn as planned. The withdrawal of stimulus is expected to subtract 1 percentage point from growth in 2010 and a further ¾ of a percentage point in 2011.

Australia's position in the fastest growing region in the world is also presenting major opportunities for Australia in the period ahead. Our trade links and demand for our exports are forecast to push Australia's terms of trade to their highest level in 60 years, boosting national income and expenditure.

While recent events in Greece are a reminder that global economic risks remain, the strength of our economy and our robust fiscal position form a solid buffer against these global uncertainties.

With private sector activity recovering, and the economy moving back towards more normal levels of capacity, the Government is focused on key reforms that expand the productive capacity of the economy so that we can maximise the opportunities ahead.

CANBERRA
11 May 2010