The 2003-04 Mid-Year Economic and Fiscal Outlook (MYEFO) released today demonstrates the continued resilience of the Australian economy and reflects the Government's ongoing commitment to a strong economy through sustainable fiscal management.
The Australian economy is forecast to grow by 3¾ per cent in 2003-04, an upward revision from the 3¼ per cent forecast at the 2003-04 Budget. The upward revision comes against a backdrop of improving sentiment about domestic and external growth prospects. Generally, the near-term outlook for the Australian economy has brightened since Budget, with increasing signs of global recovery, particularly in the United States, and an easing in drought conditions over much of Australia.
Employment is forecast to grow by 1½ per cent, and the unemployment rate is forecast to average around, or possibly a little below current levels of 5¾ per cent. Inflation is forecast to decline to around 2 ¼ per cent in the year to the June quarter 2004.
The improving fiscal outlook since the 2003-04 Budget is underpinned by increased budget surpluses projected across the forward estimates years, an impressive result when compared to the significant deficits being experienced by many major advanced economies.
The Government now expects an underlying cash surplus of $4.6 billion in 2003-04, an improvement of $2.5 billion since the 2003-04 Budget. This is primarily the result of an increase in cash receipts of $3.7 billion, principally the result of higher company profits leading to higher company tax collections.
This rise in receipts is partly offset by an increase in estimated 2003-04 cash payments, primarily due to $1.0 billion of new policy decisions taken by the Government since the Budget. Decisions include increased funding for health with the introduction of MedicarePlus, and new listings on the Pharmaceutical Benefits Scheme of drugs such as Enbrel, Avandia/Actos, and Mabthera . The Government has also provided additional drought relief funding and assistance to the Solomon Islands in restoring law and order.
After just three years of The New Tax System, six States and Territories are expected to receive more revenue in 2003-04 than the Guaranteed amount they would have received under the old tax system. Compared to Budget, the MYEFO estimates show that South Australia no longer requires Budget Balancing Assistance in 2003-04. When added to the five other States and territories estimated at Budget to be better off in 2003-04 - Queensland, Western Australia, Tasmania, the Australian Capital Territory and the Northern Territory - these six States or territories are estimated to be better off by some $575 million in 2003-04.
Net debt is forecast to continue to fall in 2003-04 around to $23.3 billion mainly as a result of the higher than anticipated final budget outcome for 2002-03 and an upwards revision to the projected surplus for 2003-04. This represents a reduction in net debt of around $73 billion from Labor's peak of $96 billion.
Net worth is also expected to improve to -$43.3 billion in 2003-04, compared with -$46.1 billion expected at the 2003-04 Budget, reflecting an improvement in the fiscal outlook since the 2003-04 Budget.
The initial forecast for 2004-05 is for economic growth of around 3½ per cent. Domestic demand is expected to be solid and external conditions should be supportive of growth. Employment growth is forecast to be moderate and inflation is expected to fall a little further.
There are still risks around the outlook, particularly regarding the sustainability of the international recovery, but overall the near-term risks have diminished since Budget and are now more evenly balanced.