The 2011‑12 Mid-Year Economic and Fiscal Outlook (MYEFO) released today forecasts solid economic growth, low debt and a return to surplus in 2012‑13, despite a significant deterioration in global conditions in recent months cutting $20 billion from government revenues.
Global economic and financial conditions have deteriorated markedly in recent months, and the risks to global stability from the European sovereign debt crisis have intensified. Global growth prospects have been downgraded markedly in 2012, with the euro area expected to return to recession.
This has led to a weaker near-term economic and fiscal outlook for Australia since the Budget and substantial reductions to government revenues.
Real GDP is now expected to grow by 3¼ per cent in 2011-12 and 2012-13, downgrades of ¾ of a percentage point in 2011-12 and ½ of a percentage point in 2012-13.
Global developments have impacted on our share market, on trade outside of the mining sector and on confidence, with consumers becoming more cautious and businesses more reluctant to expand their workforce in the current uncertain global environment.
The recent instability in the global economy has had obvious consequences for revenue, with forecast tax receipts written down by more than $20 billion over the forward estimates. Lower tax receipts and higher payments – including advance payments to Queensland to support natural disaster recovery and significant assistance provided to households and businesses as part of the Clean Energy Future package – have led to a larger forecast deficit of $37.1 billion for 2011-12, returning to a small surplus of $1.5 billion in 2012-13.
The substantial downgrades to budget revenue flowing from heightened global turbulence have meant that the Government has had to find further savings in the budget. The European sovereign debt crisis has underscored the importance of maintaining fiscal discipline, which is important at a time when international financial markets are punishing those without discipline.
The Government has responded to the more challenging fiscal outlook in a measured and balanced way, delivering $11.5 billion in new savings. The combined effect of all policy decisions has improved the budget bottom-line by $6.8 billion over the forward estimates.
These savings steadily build over the forward estimates, and have been achieved through a combination of expenditure cuts including efficiencies sought within government, deferring some initiatives and implementing measures to improve the integrity and fairness of the taxation system. This mix of savings is appropriate given near-term uncertainty but more solid medium-term growth prospects, and will help strengthen our fiscal position over the medium term.
Australia will return the budget to surplus ahead of all major advanced economies, and government net debt peaks dramatically lower than in these countries at 8.9 per cent of GDP in 2011-12, before falling to 7.7 per cent of GDP in 2014-15. This is less than a tenth of the average net debt position of the major advanced economies expected in 2016 of 92.9 per cent of GDP.
The decisions taken in this MYEFO have not been easy, but are crucial to sustaining confidence in Australia's public finances. As always, the Government has sought to protect low- and middle‑income Australians, and the most vulnerable in our community, by striking the right balance in its budget decisions.
Strong and stable economic management, and our record of fiscal discipline, remains very important for Australian families across the country because it helps underpin confidence in our economy and supports Australian jobs at a time of heightened global uncertainty.
The MYEFO is available at http://www.budget.gov.au.