Today's Mid-Year Economic and Fiscal Outlook (MYEFO) confirms that the Budget remains on track to return to balance in 2020-21.
Despite the many challenges faced, this is the Government's fifth consecutive budget update with a projected return to balance in 2020-21.
An underlying cash deficit of $23.6 billion is now expected in 2017-18, an improvement of $5.8 billion compared to the deficit reported at the 2017-18 Budget. The projected surplus of $10.2 billion in 2020-21, is an improvement of $2.7 billion compared to May's Budget estimate.
Since the 2017-18 Budget, the underlying cash balance has improved by $9.3 billion over the forward estimates.
The net operating balance is similarly expected to improve from a deficit of $18.2 billion in 2017-18 to a surplus of $6.8 billion in 2019-20 and further building to a surplus of $20.9 billion in 2020-21.
The Turnbull Government has wrangled Labor's reckless addiction to spending and is bringing the budget under control. Compared with the Budget, nominal payments are lower in every year of the forward estimates and have decreased by a total of $6.5 billion. The payments-to-GDP ratio is expected to fall to 24.9 per cent of GDP by 2020-21, only slightly above the 30 year historical average. Real growth in payments over the forward estimates is expected to be 1.9 per cent per annum on average, consistent with recent budget updates.
Expected receipts have been revised up by around $3.6 billion in 2017-18 and $2.8 billion over the four years to 2020-21, relative to the estimates at the time of the 2017-18 Budget. This is largely driven by higher forecasts for company tax due to stronger-than-expected collections, increased company profitability and ATO enforcement activity. At the same time, lower forecasts for wages and unincorporated business income are expected to weigh on individuals' income tax receipts.
Reflecting the Government's prudent fiscal management, net debt is expected to stabilise at decreased levels compared to the Budget over the forward estimates, peaking at 19.2 per cent of GDP in 2018-19 (previously 19.8 per cent) and falling to 17.2 per cent of GDP in 2020-21.
In addition, the Government is now not expected to need to borrow for recurrent spending from 2017-18, which is a year earlier than was expected at the time of the 2017-18 Budget. This would be the first time since the Global Financial Crisis that this has been the case.
These are the welcome dividends of prudent fiscal management and a growing economy.
A plan for a stronger economy and guaranteeing the essentials
Our economy is strengthening. Growth and jobs are rising and the better days ahead the Government spoke about in the Budget are emerging.
The Australian economy is expected to grow at a solid pace in 2017-18. Non-mining business investment has been increasing, while the drag on growth from falling mining investment has been diminishing and has nearly run its course. Labour market conditions have strengthened, with more than 360,000 jobs at a rate of 1,000 jobs a day having been created in 2017. Growth in household consumption has been modest and inflation and wage growth remain subdued.
Our growth story remains a compelling one, and although real GDP growth has been slightly tempered in 2017-18, the trajectory is upward.
Australia's real GDP growth is expected to rise from the 2 per cent achieved in 2016-17. Real GDP is forecast to grow by 2½ per cent in 2017-18, slightly below the Budget forecast of 2¾ per cent. In line with the Budget, real GDP is forecast to grow at 3 per cent in 2018-19.
Nominal GDP is forecast to grow by 3½ per cent in 2017-18 and 4 per cent in 2018-19 as the terms of trade retrace following strength in 2017-18. The 2017-18 forecast is lower compared with Budget, largely reflecting recent subdued outcomes for wage growth and domestic prices. Commodity prices remain a key uncertainty to the outlook for the terms of trade and nominal GDP.
Global growth has strengthened significantly over the course of the year. While the strengthening in growth was anticipated at Budget, it has accelerated by more than forecast. The drivers of global growth have become increasingly broad-based. Growth has strengthened in most advanced and emerging economies over the year, producing a more synchronised global expansion.
The Government is continuing to implement its plan to boost economic growth, create jobs, support small businesses and reduce the cost of living pressures faced by Australians. This plan will continue to support the economy as it transitions to broader-based growth.
In addition to supporting a resurgence in private investment, the Government's economic plan seeks to boost jobs and growth through investment in infrastructure projects that improve long-run productivity. As part of this plan, the Government is continuing its record ten year $75 billion investment in transport infrastructure.
Providing a reliable and dependable energy network is essential for Australia's continued prosperity. The Government's National Energy Guarantee is a crucial part of the Government's plan to ensure that Australia's energy system delivers affordable, reliable and sustainable power to households and businesses. In addition, Snowy Hydro 2.0 will also help protect the energy security of the eastern seaboard by providing additional electricity generation capacity of 2,000 megawatts – enough to power 500,000 homes.
The Government is taking further action to guarantee other essential services on which Australians rely. This includes protecting and boosting housing affordability, essential healthcare and education services.
The Government is continuing to implement the comprehensive housing affordability plan, announced at the 2017-18 Budget, designed to improve outcomes across the housing spectrum.
The Government has legislated a leg up for first home buyers by allowing them to save for a deposit inside superannuation through the First Home Super Saver Scheme and initiated negotiations with the States and Territories on a new National Housing and Homelessness Agreement. The Government is also establishing a new National Housing Infrastructure Corporation and a $1 billion National Housing Infrastructure Facility that will fund infrastructure to unlock new housing supply.
The Government is taking action to ensure access to quality and affordable health care. This MYEFO includes $2.1 billion for new and amended listings on the Pharmaceutical Benefits Scheme. A further $150 million in new funding from the Medical Research Future Fund is being provided for medical research to improve the survival rates of people living with brain cancer, to support Australia's next generation of medical research fellowships and to support Australia's biomedical technology sector.
The 2017-18 MYEFO confirms that the Turnbull Government is delivering on its fiscal strategy and efforts to restore the Budget to balance, while promoting a strong economy, boosting jobs and guaranteeing the essential services which Australians rely on.
The Mid-Year Economic and Fiscal Outlook for the 2017-18 financial year is available on the 2017-18 Budget website.