The 200001 Mid-Year Economic and Fiscal Outlook (MYEFO), released today, demonstrates the continuing strength of the Australian economy. The forecast for economic growth in 200001 has been revised up from 3- per cent to 4 per cent since the 2000-01 Budget, reflecting in particular a stronger export performance.
Consistent with stronger economic and employment growth, the underlying cash surplus is expected to be $4.3 billion in 2000-01, $1.5 billion higher than estimated at the 200001 Budget. In accrual terms, the fiscal surplus is expected to be $8.4 billion, $3 billion higher than estimated at the Budget.
The improved fiscal outlook for 2000-01 reflects higher than expected revenue collections, partly offset by increased expenses.
- Revenue is now expected to be $4.2 billion higher than estimated at the 200001 Budget. This increase is mainly due to higher revenue from companies and other self-employed individuals - driven by upward revisions to forecast company profits and employment growth, and some ongoing base effects of a stronger than expected revenue outcome in 1999-2000.
- Estimated expenses in 2000-01 have increased by $2.6 billion since the 2000-01 Budget. Major revisions include: higher savings bonuses paid to older Australians; a greater than expected take-up of the Private Health Insurance Rebate; and revised Commonwealth superannuation expenses.
The MYEFO also reports that transitional factors affecting GST revenue have reduced the amount of budget balancing assistance the States will require from the Commonwealth in 2000-01 and 2001-02. These transitional factors derived from early monthly GST collections are expected to produce a one-off increase in net GST revenue of $2.25 billion in 2000-01 and appear to arise from:
- a short lag between when businesses report GST receipts on sales and when they claim input tax credits relating to those sales. A short invoice processing lag in claiming input tax credits means slower than expected initial input credit claims, sufficient to produce a one-off significant boost to net GST collections in 2000-01; and
- the fortnight between the receipt of GST revenue and the processing of net refunds by the ATO means that some refunds on 2000-01 revenue will be paid early in 2001-02 - boosting net GST collections in the current year.
Estimated GST revenue is unchanged in the forward years, reflecting the fact that, at this stage, first quarterly returns have not yet been all received. Future projections of GST revenue are subject to much greater uncertainty than is the case with other revenue collections.
In 2000-01, Commonwealth general government net debt is estimated to fall to its lowest level as a percentage of GDP since 1990-91. Net debt is forecast to continue falling through the forward estimates period as the Government delivers surpluses and in addition its privatisation program. Net debt has fallen from a high of almost 20 per cent of GDP in 1995-96 to 6.4 per cent in 2000-01 a net reduction of over $50 billion.
Employment is now expected to increase by a strong 3 per cent in 2000-01, compared with 2 per cent at Budget, largely reflecting rapid employment growth in the September quarter 2000 and the upward revision to the overall economic growth forecast. The unemployment rate is expected to continue its downward trend, to below 6 per cent by the June quarter 2002.
Through the year to the June quarter 2001, ongoing inflation is forecast to be around 3 per cent, revised up from 2 per cent at Budget. The upward revision reflects the impact of higher world oil prices and the lower exchange rate relative to the levels assumed in the Budget, rather than any significant step up in domestic wage or general inflationary pressures. The headline Consumer Price Index is forecast to increase by around 5 per cent through the year to the June quarter 2001, which takes into account a one off increase in prices of around 2 per cent flowing from The New Tax System. In 2001-02, headline inflation is expected to be around the bottom of the 23 per cent target band.
The current account deficit is expected to decline significantly to around 4 per cent of GDP in 2000-01, down from 5 per cent of GDP in 1999-2000.
An electronic version of the 200001 MYEFO can be found at: www.budget.gov.au.