Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based arereasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The results ultimately achieved may differ substantially from these forecasts.
Australian Federal budget 2013: a preview
Budget in deficit, as revenue disappoints
The government late last year abandoned their commitmentto return the budget to surplus this financial year. Revenuecollections have surprised to the low side in 2012/13 and,accordingly, revenue prospects have been downgraded. SeeTable 1 for a summary of our figuring on the revenue numbers.With a significant downgrading of revenue for 2012/13 andbeyond, the budget is on current policy likely to remain in deficitacross the forecast period.Taxation receipts in 2012/13 are up on last year, withcollections for the initial eight months of the year up 7% on thecorresponding period a year earlier. However the rate of growthis less than the government expected, with growth forecast to be11% for the full year.The revenue shortfall in 2012/13 is judged by officials to bearound $12bn. Company tax revenues ($6.3bn), the mining tax($1.2bn) and the petroleum tax ($2bn) are the major sourcesof downside surprise. Company tax collections are likely to bebroadly unchanged from 2011/12, whereas the governmentforecast a rise of 9.4%, +$6.3bn. The mining tax was to raise$2bn, whereas an outcome of $0.8bn is now more likely.A lower starting point for revenue will flow through to the outyears. Although, the impact is likely to diminish somewhat fromaround 2014/15. By then, the AUD premium over the terms oftrade may have declined and tax loss offsets against companytax are likely to have decreased.Weaker economic growth prospects for next year will also reducerevenue collections. We anticipate that forecast nominal GDPgrowth for 2013/14 will be lowered by 0.75% (see discussionbelow). Applying a rule of thumb estimates the budget impactwill be $2bn in the initial year, rising to $5bn in 2014/15.Revenue numbers will also be impacted in 2015/16 and beyondby a downgrading of the projected price of carbon. Reportedly,officials will revise the price assumption for 2015/16 to $15 atonne, down from $29. Proceeds from the sale of carbon permitsare likely to be around half of the previously expected $6.7bn.Reportedly, taxation receipts across the four years to 2015/16will be some $60bn to $80bn less than expected in the budget,or alternatively, some $40bn to $60bn less than projected in theMid Year Economic & Fiscal Outlook (MYEFO.) On our figuring,revenue for the four years is $55bn lower than in MYEFO.There is also a delay in proceeds from the sale of digitalspectrum. MYEFO anticipated a $4bn boost in 2012/13.Proceeds, which are now more likely to be around $3bn, will bereceived in 2013/14.
Economic growth: downgraded
The government will lower forecast real GDP growth for this yearand next by 0.25% to 2.75%, for both years. See Table 2 for asummary of the economic growth forecasts.
Similarly, forecast nominal GDP growth for 2012/13 is likely tobe trimmed by 0.25%, to 3.75%. For the 2013/14 year, forecastnominal GDP growth may be trimmed by a more substantial0.75%, to 4.75%. This would allow for prospects of lower inflationacross the broader economy than currently assumed.The terms of trade view is unlikely to differ greatly from the cur-rent forecasts for a 8.0% decline in 2012/13 and a 2.75% fall in2013/14.Current projections for 2014/15 and 2015/16 are real GDPgrowth of 3.0% and nominal GDP growth of 5.25%, in both years.These numbers are unlikely to change.Such a set of forecasts is credible, as a central case. Risks sur-rounding forecasts over a four year period are understandablyconsiderable, particularly given the fragile nature of conditionsacross Europe.
Policy measures: spending, savings, tax reform
The Government has committed to matching any additionalexpenditure associated with new policy with offsetting savings.Education funding (Gonski) and the National Disability InsuranceScheme (NDIS) are the two key areas of new spending priority.Both of these are multi-billion policies, which are to be phasedin over a number of years. See Table 1 for a summary ofexpenditure and saving measures.
(Note, fiscal projections in the budget papers will extend to2016/17, and not beyond, if standard practice is adopted.)
The medicare levy is to be increased by 0.5% to 2.0%, raisingaround $3.5bn a year. This revenue is to be directed to fundingthe NDIS. The medicare levy increases on 1 July 2014 but majornew funding for NDIS is not required until 2017/18, after theend of the three year trial period. Hence, the levy generates netsavings in 2014/15 and 2015/16, potentially around $2bn to$2.5bn a year.Reports suggest the government will shelve some measures thatwere tied to the mining tax and to the carbon price scheme,both of which are now expected to generate less revenue thananticipated. Family assistance linked to the mining tax is unlikelyto proceed, valued at $0.6bn a year from 2013/14. Tax cuts of$1.4bn scheduled for 2015, as compensation for a higher carbonprice, are likely to be jettisoned.The budget will provide more detail surrounding the cost of theNDIS. Available information suggests that the NDIS when fullyoperational in 2018/19 will require annual funding of $22bn. Ofthis, some $10.5bn in new funding is required, above existingprograms. The Federal government would be required to meetaround $8bn of this, given a 75:25 funding split with the states.Of this $8bn, a new medicare levy would raise around $3.5bna year. Current funding allows for limited trials in 5 states andterritories, at a cost to the Federal budget of around $1bn overfour years. Some shifting of responsibilities between the statesand the Commonwealth is likely to come at a cost to the Federalbudget over the forecast period.