Microsoft word - 02 pefo main body.doc

PRE-ELECTION ECONOMIC AND FISCAL OUTLOOK
OVERVIEW
The Australian economy is expected to grow by 4¼ per cent in 2007-08 despite the ongoing effects of drought and heightened downside risks to the world economic outlook. The underlying cash and fiscal balances are estimated to be in surplus in 2007-08 and the forward years. Table 1 provides revised estimates and projections of the underlying cash and fiscal balances for the period from 2007-08 to 2010-11. Table 1: Summary of budget aggregates
Underlying cash balance ($b)(a)
Fiscal balance ($b)
(a) Excludes expected Future Fund earnings. ECONOMIC OUTLOOK
The Australian economy is forecast to grow by 4¼ per cent in 2007-08 and 3½ per cent in 2008-09. Growth is expected to be broadly based, reflecting continued strong business investment and household consumption. A partial recovery from drought is forecast to contribute to GDP growth, although dry weather conditions and low water storage levels pose a downside risk to the farm outlook. Farm production is not expected to recover to pre-drought levels over the forecast horizon. In line with the forecasts for GDP growth, employment is expected to grow by 2¼ per cent in 2007-08 before easing to 1¾ per cent in 2008-09. Wage and inflation pressures in the near-term are expected to ease over the forecast horizon. Strong world growth, particularly in emerging market economies, is expected to support the domestic economy. However, the potential for further financial market volatility associated with the US sub-prime mortgage market poses a downside risk to the outlook. Table 2 presents the major economic parameters used in preparing the Pre-Election Economic and Fiscal Outlook 2007 (PEFO). The parameters for 2007-08 and 2008-09 are forecasts, while those for 2009-10 and 2010-11 are projections. The forecast assumptions and projection methodology are consistent with those in the Mid-Year Economic and Fiscal Outlook 2007-08 (2007-08 MYEFO). As noted in the 2007-08 MYEFO, Pre-Election Economic and Fiscal Outlook 2007 if the recent financial market turbulence continues to be resolved in a relatively benign fashion, stronger outcomes are possible for the domestic economy, especially given the magnitude of investment projects in the pipeline. Stronger growth in an economy that is close to full employment could add to wage and price pressures, although if the recent appreciation of the Australian dollar is sustained, this would have a dampening effect on economic activity and prices. A more detailed discussion of the economic outlook is contained in the 2007-08 MYEFO. Table 2: Major economic parameters(a)
FISCAL OUTLOOK
An underlying cash surplus of $14.4 billion, or 1.3 per cent of GDP, is estimated for 2007-08. A fiscal surplus of $14.4 billion, or 1.3 per cent of GDP, is estimated for 2007-08. The fiscal outlook is for continuing underlying cash and fiscal surpluses in the forward years. This is consistent with the outlook published in the 2007-08 MYEFO, after reflecting the impact of decisions taken prior to the dissolution of Parliament. Table 3 provides a summary of the major budget aggregates. Table 3: Australian Government general government sector budget aggregates(a)
Revenue ($b)
Expenses ($b)
Fiscal balance ($b)
Underlying cash balance ($b)(b)
Memorandum item:Headline cash balance ($b) (a) All estimates are based on Government Finance Statistics (GFS) standards, but with goods and services tax (GST) revenue collected on behalf of the States and Territories netted off revenue and expenses. (b) Excludes expected Future Fund earnings. Pre-Election Economic and Fiscal Outlook 2007 Table 4 provides a reconciliation of the fiscal balance estimates between the 2007-08 Budget, the 2007-08 MYEFO and the 2007 PEFO. Table 4: Reconciliation of 2007-08 Budget, 2007-08 MYEFO and 2007 PEFO fiscal
balance estimates(a)
2007-08 Budget fiscal balance
Changes between 2007-08 Budget and MYEFO
Effect of policy decisions(b)
Total variations
2007-08 MYEFO fiscal balance
Changes between 2007-08 MYEFO and PEFO
Effect of policy decisions(b)
Total policy decisions impact on fiscal balance Total parameter and other variations impact on 2007 PEFO fiscal balance
(a) A positive number for revenue indicates an increase in the fiscal balance, while a positive number for expenses and net capital investment indicates a decrease in the fiscal balance. (b) Excludes the public debt net interest effect of policy measures. Table 5 provides a list of the policy decisions taken and parameter and other variations from 10 October 2007 (reflecting the inclusion of policy decisions taken up to and including 9 October 2007 in the 2007-08 MYEFO) to the commencement of the caretaker period on 17 October 2007. Pre-Election Economic and Fiscal Outlook 2007 Table 5: Variations since the 2007-08 MYEFO(a)
POLICY DECISIONS
Revenue measures
Australian Defence Force – reclassification of service by Australian Training Support Team in East Timor Capital gains tax – changes to small business concessions Capital gains tax – demutualisation of health insurers Capital gains tax – ending of interests in widely held entities and Commencement date for changes to the consolidation tax cost Equine influenza – twelve week extension of assistance Personal income tax – tax exemption for the Queensland Government's $1,000 Early Completion Bonus for apprentices Philanthropy – changes to prescribed private funds Philanthropy – updating the list of deductible gift recipients Total revenue measures
Expense measures
Aged Care – increase funding for the National Seniors Association Australian Defence Force – inclusion of the Australian Training Support Team in the United Nations Transitional Administration in East Timor Australian Made Campaign – additional funding Australian Paralympic Committee – additional contribution Australian Red Cross Blood Service – support The Year of the Bass Strait Passenger Vehicle Equalisation Scheme – increase the standard passenger vehicle rebate from $150 to $168 each way Beaconsfield Community Fund – additional funding for Grubb Bimbimbie Wildlife Park – support for infrastructure costs(b) Bradman Centenary Project – contribution to the construction of Bravery medals from the Battle of Long Tan – establishment Centre for Social Impact – matching contribution to the initial Clever Networks – additional funding for connecting independent Clinical School at Greenslopes Private Hospital Commonwealth Trade Learning Scholarship – extension of scholarship for early completion of apprenticeship Community Water Grants – bring-forward of expenditure Cricket Australia Centre of Excellence – contribution Drought assistance – Exceptional Circumstances assistance for primary producers – additional declarations Drought assistance – Exceptional Circumstances assistance for small business – additional declarations Employer and apprentice incentives for apprentices in skills shortage – remove the prior-qualification rule Employer incentives for intermediate qualifications Equine influenza – twelve week extension of assistance Pre-Election Economic and Fiscal Outlook 2007 Table 5: Variations since the 2007-08 MYEFO(a) (continued)
Expense measures (continued)
General Employee Entitlements and Redundancy Scheme – continue funding liquidators to pursue litigation Great Barrier Reef Marine Park Structural Adjustment Package – Immigration Health Screening Process – strengthening Innovative rainfall enhancement technology – contribution Kokoda Track – assistance to Papua New Guinea for World Heritage listing of the Owen Stanley Ranges(d) Living Away From Home Allowance – extension to Australian Local government amalgamation – plebiscites in the Northern Medicare Benefits Schedule – make knee and brain Magnetic Resonance Imaging services referred by GeneralPractitioners Medicare-eligible Operations Catalyst and Slipper – enhanced electronic Orang-utan conservation in Indonesia – funding(g) Pambula Surf Life Saving Club – contribution Patrol vessel in Australian Northern Waters – extension Pharmaceutical Benefits Scheme – extension to the listing of Pharmaceutical Benefits Scheme – extension to the listing of Pharmaceutical Benefits Scheme – listing of Renegal® Regional maritime security capacity-building(d) Reversal of a measure reported as a 'decision taken but not yet Seniors Concession Allowance – increase(h) Sydney 2009 World Masters Games – contribution Television Technical Operators College and Westrac National Skills Training Centre of Excellence – grants Utilities Allowance – increase and extend eligibility to include all recipients of Disability Support Pension, Service Pensionand Carer Payment(i) Depreciation expense(j)
Total expense measures(k)
Capital measures
Australian Defence Force – inclusion of the Australian Training Support Team in the United Nations Transitional Administration in East Timor Immigration Health Screening Process – strengthening Patrol vessel in Australian Northern Waters – extension Depreciation expense(j)
Total capital measures(k)
Total policy decisions impact on fiscal balance
Pre-Election Economic and Fiscal Outlook 2007 Table 5: Variations since the 2007-08 MYEFO(a) (continued)
PARAMETER AND OTHER VARIATIONS
Revenue variations
Total revenue variations
Expense variations
Department of Immigration and Citizenship funding base adjustment – annual funding reconciliation Drawdown of the contingency reserve Official Development Total expense variations
Total parameter and other variations impact on fiscal
TOTAL VARIATIONS SINCE THE 2007-08 MYEFO IMPACT
ON FISCAL BALANCE
* The nature of the measure is such that a reliable estimate cannot be provided. . Not zero, but rounded to zero. - Nil. (a) A positive number for revenue indicates an increase in the fiscal balance, while a positive number for expenses and net capital investment indicates a decrease in the fiscal balance. (b) The Bimbimbie Wildlife Park — support for infrastructure costs measure includes funding of $2.5 million in 2007-08. This funding will be met from within the existing resourcing of the Department of the Environment and Water Resources. (c) The Clever Networks — additional funding for connecting independent Victorian schools measure includes funding of $2.0 million in 2007-08 and $3.0 million in 2008-09. This funding will be met from within the existing resourcing of the Department of Communications, Information Technology and the Arts. (d) The Drawdown of the contingency reserve Official Development Assistance provision estimates variation partially offsets the Kokoda Track — assistance to Papua New Guinea for World Heritage listing of the Owen Stanley Ranges and Regional maritime security capacity-building measures. (e) The Local government amalgamation — plebiscites in the Northern Territory measure funding is unquantifiable at this stage as it will depend on the number of local government areas included in the plebiscites and the format for the plebiscites. (f) The Operations Catalyst and Slipper — enhanced electronic counter measures measure includes funding of $46.0 million in 2007-08 and $27.0 million in 2008-09. This funding will be met from within the existing resourcing of the Department of Defence. (g) The Orang-utan conservation in Indonesia — funding measure includes funding of $500,000 over four years. This funding will be met from within the existing resourcing of AusAID. (h) The Seniors Concession Allowance — increase measure includes funding of $36.0 million in 2007-08, $65.0 million in 2008-09, $63.0 million in 2009-10 and $65.0 million in 2010-11. This measure was included as a ‘decision taken but not yet announced’ in the 2007-08 MYEFO. (i) The Utilities Allowance — increase and extend eligibility to include all recipients of Disability Support Pension, Service Pension, and Carer Payment measure includes funding of $504.0 million in 2007-08, $1,041 million in 2008-09, $1,077 million in 2009-10 and $1,122 million in 2010-11. This measure was included as a ‘decision taken but not yet announced’ in the 2007-08 MYEFO. (j) Aggregate depreciation expenses in relation to capital measures. (k) Measures may not add due to rounding. Cash flows
In 2007-08, an underlying cash surplus of $14.4 billion is expected. New policy decisions and parameter and other variations since the 2007-08 MYEFO have had a similar impact on the underlying cash balance as the fiscal balance. Pre-Election Economic and Fiscal Outlook 2007 Table 6: Reconciliation of 2007-08 Budget and 2007 PEFO underlying cash
balance estimates
2007-08 Budget underlying cash balance(a)
Changes from 2007-08 Budget to MYEFO
Effect of policy decisions(b)
Total variations
2007-08 MYEFO underlying cash balance(a)
Changes from 2007-08 MYEFO to PEFO
Effect of policy decisions(b)
Total variations
2007 PEFO underlying cash balance(a)
(a) Excludes expected Future Fund earnings. (b) Excludes the public debt net interest effect of policy measures. Statement of risks and sensitivity of fiscal expenses and revenues to
economic developments
The statement of risks and the estimated sensitivity of the fiscal aggregates to changes to the economic parameters for the 2007 PEFO are unchanged from that provided in the 2007-08 MYEFO. They are therefore not included in this report. The 2007-08 MYEFO statement of risks updated those material fiscal risks and contingent liabilities that had changed since the 2007-08 Budget.

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