The 2007-08 Mid-Year Economic and Fiscal Outlook (MYEFO) released today shows that the economic and fiscal outlook remains sound.
The Australian economy is expected to grow by 4¼ per cent in 2007‑08, compared with 3¾ per cent forecast at Budget. The upward revision reflects a broad‑based strengthening in growth during the first half of 2007, which is expected to be sustained. Business investment is forecast to grow strongly, underpinned by ongoing profitability in the mining and construction industries.
Despite some near‑term strength, wage and inflation pressures are forecast to ease in 2008‑09. This reflects an easing in demand pressures and increasing supply flowing from strong and sustained business investment and stronger productivity growth.
The fiscal outlook continues to remain sound. An underlying cash surplus of $14.8 billion (1.3% of GDP) is forecast for 2007‑08. Strong budget surpluses are also forecast across the forward years. The projected underlying cash surpluses for the future years emphasise Australia’s sound fiscal outlook at a time when many of the major advanced economies are continuing to experience significant deficits.
The MYEFO incorporates personal income tax cuts of $34 billion over the forward estimates period, commencing from 1 July 2008.
The financial position of the Government continues to improve with net worth projected to improve to $17.2 billion (1.5 per cent of GDP) in 2007‑08 due to strong surpluses and the growth of assets in the Future Fund.
Net debt was eliminated in 2005‑06, falling from a peak of 18.5 per cent of GDP in 1995-96. By eliminating net debt the Australian Government is now saving $8.4 billion in annual interest payments. Net interest receipts are estimated at $0.8 billion in 2007-08 representing a total turnaround over $9 billion per annum compared to 1996.