The Charter of Budget Honesty Act 1998 (the Charter) provides for the Secretary to the Treasury and the Secretary of the Department of Finance and Deregulation (the Secretaries) to release publicly a Pre-Election Economic and Fiscal Outlook report (PEFO) within 10 days of the issue of the writ for a general election. Such a writ was issued on 5 August 2013.
The purpose of the PEFO is to provide updated information on the economic and fiscal outlook. The information in the report takes into account, to the fullest extent possible, all Government decisions made before the issue of the writ and all other circumstances that may have a material effect on the economic and fiscal outlook.
In recognition of the limited time available to prepare the PEFO, the Charter provides that information which is unchanged from that provided in an earlier economic and fiscal outlook report may be summarised in the PEFO.
The 2013 PEFO updates the estimates contained in the 2013-14 Budget and the August 2013 Economic Statement. Like the Economic Statement, the economic forecasts underpinning the PEFO take into account information contained in the March quarter national accounts. Given differences in their date of release, the PEFO is able to reflect more updated information than the Economic Statement. The PEFO reflects economic indicators released up to and including Tuesday, 6 August 2013. The PEFO also includes all decisions taken by the Government since the Economic Statement.
Consistent with the Charter, the PEFO:
- provides updated fiscal estimates and projections for the current financial year and the following three financial years;
- presents the updated economic forecasts and assumptions that have been used in preparing the updated fiscal estimates and projections;
- provides in Appendix A a summary of the external reporting standards used in the preparation of the PEFO and updated financial statements;
- lists in Appendix B the policy decisions taken by the Government since the August 2013 Economic Statement and decisions not announced at the time of the Economic Statement;
- updates in Appendix C the general and specific risks to the budget forward estimates for material changes in these risks since the 2013-14 Budget;
- discusses in Appendix D the sensitivity of the fiscal estimates to changes in major economic parameters; and
- examines in Appendix E the sensitivity of estimates to changes in two major program parameters.
Pre-Election Economic and Fiscal Outlook reports have been published under the Charter since 1998 — the first general election after the Charter of Budget Honesty Act 1998 commenced. Over that period, governments have changed their approach to publishing forecasts and projections across the forward estimates.
Since the 2009-10 Budget, the Government has published forecasts for the budget year and following financial year and projections for the following two years (the distinction between forecasts and projections is discussed in Box 3). Before 2009-10, the Government published forecasts for the budget year only and projections for each of the following three years.
Each PEFO has followed the practice adopted in the immediately preceding fiscal report published under the Charter. This PEFO follows that precedent. The updated fiscal estimates are based on economic forecasts for 2013-14 and 2014-15 and projections for 2015-16 and 2016-17. A future government could adopt a different practice (for example, to change the number of forecast and/or projection years) in a future fiscal report, a practice that could then be reflected in any subsequent PEFO.
Given the uncertainty around any economic or fiscal forecast or projection, the Charter requires the inclusion of sensitivity analysis. In addition, in this PEFO the robustness of the central forecasts of economic activity is examined by looking at past forecast errors and publishing confidence intervals (at Box 2) and by looking at an alternative economic scenario (at Box 3).
The PEFO includes medium-term projections of the underlying cash balance and net debt (at Appendix F). Two scenarios are modelled to illustrate the sustainability of fiscal settings. The PEFO also includes new structural budget balance estimates (Appendix G). The provision of structural balance estimates is intended to provide another insight into fiscal sustainability over time when considered in conjunction with other indicators.
This additional information on the risks and sensitivities around the two forecast years and the projection years is intended to aid the reader in gaining a more comprehensive appreciation of both the inherent uncertainties surrounding these processes and of the economic and fiscal implications of different events, in line with obligations set out in the Charter.