This Budget is part of the Abbott Government's Economic Action Strategy that will build a strong, prosperous economy and a safe, secure Australia.
It is a Budget that calls on every Australian to make a contribution now to build the workforce, economy and opportunities we need for the future.
It creates a path back to surplus and slashes projections for debt, which means the money that would be wasted on interest payments can now help build the future.
While the former Government left Australians with $123 billion of deficits and no path back to surplus, our budget repair efforts have meant that deficits in our first four years are now projected to be $60 billion, with a surplus of well over one per cent of GDP projected by 2024-25.
Gross government debt is now forecast to be $389 billion in 2023-24, compared with the $667 billion left behind by the former Government. This reduction in projected debt of nearly $300 billion also assumes that we provide future tax relief to address bracket creep.
These efforts to repair the budget have been carefully balanced with the shorter-term impacts on the economy.
The Budget will redirect taxpayers' dollars from unaffordable consumption today to productive investment for tomorrow. It will do this while supporting the most vulnerable, and taking significant steps towards ensuring that the Government can live within its means.
The contributions made by all in the Budget will mean the Government can deliver a critical Infrastructure Growth Package, the world's biggest medical research endowment fund and a competitive, deregulated higher education sector.
These reforms will create jobs and the specialist careers of the future, build communities, and improve our standard of living and prosperity.
The Economy
The Australian economy is transitioning away from resource investment to the non-resources sectors.
Real GDP is forecast to continue grow below trend at 2½ per cent in 2014-15, before accelerating to near-trend growth of 3 per cent in 2015-16.
Nominal GDP growth is forecast to remain weak, with growth of 3 per cent in 2014-15 and 4¾ per cent in 2015-16.
The unemployment rate is forecast to rise from 6 per cent in 2013-14 to 6¼ per cent in 2014-15.
The decline in the nation's terms of trade will likely extend beyond the forecast period, while the rising proportion of older Australians is likely to generate lower labour force participation. This will further constrain per capita income growth, so faster productivity growth is critical to confront these challenges.
Signature Budget Reforms
The days of borrow and spend must come to an end. The time to contribute and build has begun.
- The Infrastructure Growth Package will take the Government's infrastructure investment to $50 billion by 2019-20. As a result, total infrastructure investment from Commonwealth, state and local government as well as the private sector will build an additional $125 billion by 2019-20.
- Full deregulation of the higher education sector will remove fee caps for universities and higher education providers, and expand the demand driven system to bachelor and sub-bachelor courses at all accredited higher education providers. Australian universities will be able to compete with the best in the world by giving them the freedom to innovate and the capacity to respond to the needs of students.
- The Government will create the world's largest medical research endowment fund – the $20 billion Medical Research Future Fund. Contributions to the Fund will come from savings from a new patient contribution to health services and from other health savings in this Budget. This endowment fund, when mature, will double current direct medical research funding, with an additional $1 billion a year.
- Young people with a work capacity will be required to be earning, learning or participating in Work for the Dole.
- Businesses will receive up to $10,000 for employing workers older than 50 who have been on income support for six months or more, with the establishment of Restart, meaning there will be stronger incentives to hire older workers.
Repairing the Budget
The Budget takes steps to ensure the Government is living within its means, and to rein in the age of entitlement.
- The Government will maintain official development assistance at its nominal 2013-14 level of $5 billion for two years and then grow it in line with CPI from 2016-17.
- Family payments will also be changed to target payments to those who need it most. Eligibility will be tightened on Family Tax Benefit Part B. Low income single parents will be able to access new assistance of $750 per annum for each child aged 6 to 12.
- The Government will reform the Age Pension to make it sustainable. That includes gradually increasing the age pension age to 70 by 1 July 2035 and linking pension indexation to CPI movements from September 2017.
- All payment eligibility thresholds will be maintained for three years from 1 July 2014 for non-pension payments (including Family payments, and allowances like Newstart), from 1 July 2015 for Private Health Insurance Rebate and from 1 July 2017.
- There will be a three-year Temporary Budget Repair Levy. From July, it will be payable by individuals with taxable income above $180,000 at a rate of two per cent. The Levy will raise an estimated $3.1 billion over the forward estimates period and will ensure higher income Australians contribute to the Budget repair.
- The Government will secure funding for additional road infrastructure by reintroducing twice-yearly indexation of fuel to CPI from 1 August 2014. In difficult budget circumstances, this is the responsible way to immediately start building the productivity-boosting roads Australia needs.
Fiscal Outlook
- The underlying cash deficit is expected to be $29.8 billion in 2014-15 (1.8 per cent of GDP), compared to a deficit of $33.9 billion projected in MYEFO. The deficit is expected to fall to $2.8 billion (0.2 per cent of GDP) in 2017-18. The budget is projected to reach balance in 2018-19, and grow to a surplus of well over one per cent of GDP in 2024-25, taking into account future tax relief.
- The Government's decisions have improved the underlying cash balance by $36.0 billion over the five years to 2017-18, including $18.5 billion in 2017-18.
- The size of government has been substantially reduced over the forward estimates, with the ratio of payments to GDP falling from 25.9 per cent in 2013-14 to 24.8 per cent in 2017-18, with further reductions projected to 2024-25.
- In 2014-15, net debt for the Australian Government general government sector is estimated to be $226 billion (13.9 per cent of GDP), compared with the 2013-14 MYEFO estimate of $231 billion (14.2 per cent of GDP). Net debt is expected to peak at 14.6 per cent of GDP in 2016-17, before declining to 14.0 per cent of GDP in 2017-18.
- The total face value of Commonwealth stock and securities on issue subject to the Treasurer's Direction under the Commonwealth Inscribed Stock Act 1911 is $317.4 billion as at 13 May 2014.