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Fiscal outlook

Date

An underlying cash deficit of $30.1 billion (1.9 per cent of GDP) is estimated for 2013‑14. The fiscal outlook is for a return to budget surplus in 2016‑17.

Table 3 provides a summary of the major budget aggregates.

Table 3: Australian Government general government sector budget aggregates
  Estimates   Projections
  2013-14
$b
2014-15
$b
  2015-16
$b
2016-17
$b
Receipts 369.5 390.3   423.4 450.8
Per cent of GDP 23.6 23.9   24.6 24.8
Payments (a) 396.6 411.3   424.9 443.2
Per cent of GDP 25.3 25.1   24.6 24.4
Net Future Fund earnings 2.9 3.0   3.2 3.4
Underlying cash balance (b) -30.1 -24.0   -4.7 4.2
Per cent of GDP -1.9 -1.5   -0.3 0.2
Revenue 379.9 397.7   433.3 464.6
Per cent of GDP 24.2 24.3   25.1 25.6
Expenses 401.5 416.0   430.9 454.5
Per cent of GDP 25.6 25.4   25.0 25.0
Net operating balance -21.5 -18.2   2.4 10.1
Net capital investment 4.0 3.8   0.5 2.3
Fiscal balance -25.5 -22.1   1.8 7.8
Per cent of GDP -1.6 -1.3   0.1 0.4
Memorandum item:          
Headline cash balance -37.2 -33.6   -14.0 -5.9

(a) Equivalent to cash payments for operating activities, purchases of non‑financial assets and net acquisition of assets under finance leases.

(b) Excludes net Future Fund earnings.

Underlying cash balance estimates

Table 4 provides a reconciliation of the underlying cash balance estimates from the 2013‑14 Budget to the 2013 Economic Statement and the 2013 PEFO.

Table 4: Reconciliation of 2013‑14 Budget, 2013 Economic Statement and 2013 PEFO underlying cash balance estimates
  Estimates   Projections
  2013-14
$m
2014-15
$m
  2015-16
$m
2016-17
$m
2013-14 Budget underlying cash balance(a) -18,043 -10,888   849 6,591
Per cent of GDP -1.1 -0.6   0.0 0.4
Changes from 2013-14 Budget to 2013 ES          
Effect of policy decisions(b) -373 -1,607   3,364 6,811
Effect of parameter and other variations -11,727 -11,477   -8,921 -9,374
Total variations -12,099 -13,084   -5,557 -2,563
2013 ES underlying cash balance(a) -30,142 -23,972   -4,708 4,027
Per cent of GDP -1.9 -1.5   -0.3 0.2
Changes from 2013 ES to 2013 PEFO          
Effect of policy decisions(b)(c)          
Receipts 0 0   0 0
Payments 1 56   49 -104
Total policy decisions impact on underlying cash balance -1 -56   -49 104
Effect of parameter and other variations(c)          
Receipts 87 145   131 66
Payments 85 98   37 -1
Total parameter and other variations impact on underlying cash balance 2 47   94 67
2013 PEFO underlying cash balance(a) -30,142 -23,981   -4,662 4,199
Per cent of GDP -1.9 -1.5   -0.3 0.2

(a) Excl
udes net Future Fund earnings.

(b) Excludes secondary impacts on public debt interest of policy decisions and offsets from the Contingency Reserve for decisions taken.

(c) A positive number for receipts indicates an increase in the underlying cash balance, while a positive number for payments indicates a decrease in the underlying cash balance.

Between the 2013‑14 Budget and the 2013 Economic Statement, the change in parameter and other variations resulted in a negative impact on the underlying cash balance of $41.5 billion over the four years to 2016‑17, including $11.7 billion in 2013‑14. This was largely as a result of write‑downs in tax receipts.

Between the 2013‑14 Budget and the 2013 Economic Statement, tax receipts were revised down due to lower nominal GDP expectations, including lower forecasts of commodity prices, wages and unincorporated business income. Estimated tax receipts were revised down by $7.8 billion in 2013‑14 and $8.7 billion in 2014‑15. Projected tax receipts in 2015‑16 and 2016‑17 were revised down by $8.5 billion and $8.3 billion, respectively.

Since the 2013 Economic Statement, parameter and other variations have resulted in an increase to the underlying cash balance of $2 million in 2013‑14 and of $210 million over the four years to 2016‑17.

Changes to the underlying cash balance as a result of parameter and other variations since the 2013 Economic Statement primarily reflect updated assumptions of a slightly lower exchange rate, which has an impact on both payments and receipts; a higher European carbon price, which has resulted in minor revisions to tax receipts; and revised dividend estimates for government business enterprises based on updated corporate plans, which have resulted in minor adjustments to non‑tax receipts.

The exchange rate revision affects payments (primarily related to defence procurement), as well as receipts relating to resource rent taxes, company tax and excise and customs duty. Both the exchange rate and European carbon price revisions affect receipts from the carbon pricing mechanism. In total, tax receipts have been revised up by $70 million in 2013‑14, $155 million in 2014‑15, $190 million in 2015‑16 and $175 million in 2016‑17.

Policy decisions taken after the 2013‑14 Budget and up to the 2013 Economic Statement had a negative impact of $373 million on the underlying cash balance in 2013‑14, but a positive impact of $8.2 billion over the four years to 2016‑17.

Further information on variations and decisions taken after the 2013‑14 Budget and up to the 2013 Economic Statement can be found in the 2013 Economic Statement.

Policy decisions taken since the 2013 Economic Statement have decreased the underlying cash balance by around $1 million in 2013‑14 and are broadly offset over the forward estimates.

Changes to the underlying cash balance as a result of policy decisions since the 2013 Economic Statement include funding for Priority Health Initiatives ($266 million over the four years to 2016‑17) and a contribution to the redevelopment of the Royal Victorian Eye and Ear Hospital ($50 million in each of 2014‑15 and 2015‑16). These policy decisions have been offset over the four years to 2016‑17, primarily reflecting the reversal of a number of decisions previously taken but not yet announced ($331 million over the four years to 2016‑17), and the lower than estimated costs of finalising negotiations on the Better Schools Plan ($156 million over the four years to 2016‑17).

Detail of all policy decisions not previously published up to the commencement of the caretaker period on 5 August 2013 is provided at Appendix B.

In line with normal practice, the forward estimates in the PEFO do not incorporate funding beyond 2013‑14 for some items that are considered on a year‑by‑year basis, including defence operations overseas and any potential listings of new drugs recommended by the Pharmaceutical Benefits Advisory Committee. Payments to partly reimburse States and Territories for any future natural disasters under the Natural Disaster Relief and Recovery Arrangements are also not included in the forward estimates until any such disasters occur.

Table 5 shows cash receipts by type of revenue.

Table 5: Australian Government general government (cash) receipts
  Estimates   Projections
  2013-14
$m
2014-15
$m
  2015-16
$m
2016-17
$m
Individuals' and other withholding taxes          
Gross income tax withholding 160,600 174,000   188,300 201,100
Gross other individuals 33,700 37,000   41,400 45,750
less: Refunds 27,500 28,300   30,100 31,400
Total individuals' and other withholding tax 166,800 182,700   199,600 215,450
Fringe benefits tax 4,160 4,580   4,840 5,120
Company tax 69,200 70,100   75,850 80,050
Superannuation fund taxes 7,620 9,090   11,600 13,090
Minerals resource rent tax(a) 850 1,100   1,550 2,450
Petroleum resource rent tax 2,410 2,470   2,580 2,700
Income taxation receipts 251,040 270,040   296,020 318,860
Goods and services tax 50,633 53,559   56,739 59,909
Wine equalisation tax 760 810   850 900
Luxury car tax 380 350   380 400
Excise and customs duty          
Petrol 5,850 5,750   5,850 5,950
Diesel 8,980 9,180   9,370 9,680
Other fuel products 3,800 3,620   3,690 3,750
Tobacco 8,320 9,110   10,050 10,930
Beer 2,390 2,420   2,560 2,720
Spirits 2,030 2,160   2,300 2,420
Other alcoholic beverages(b) 1,010 1,060   1,120 1,180
Other customs duty          
Textiles, clothing and footwear 730 580   420 450
Passenger motor vehicles 930 990   1,070 1,150
Other imports 1,610 1,680   1,800 1,940
less: Refunds and drawbacks 260 260   260 260
Total excise and customs duty receipts 35,390 36,290   37,970 39,910
Carbon pricing mechanism 6,475 2,870   2,745 4,050
Agricultural levies 461 451   458 464
Other taxes 2,971 3,135   3,500 3,618
Indirect taxation receipts 97,070 97,466   102,641 109,251
Taxation receipts 348,110 367,506   398,661 428,111
Sales of goods and services 8,686 8,519   8,691 8,852
Interest received 3,744 3,646   4,075 4,262
Dividends 2,748 2,463   2,679 2,695
Other non-taxation receipts 6,164 8,170   9,312 6,882
Non-taxation receipts 21,342 22,799   24,758 22,691
Total receipts 369,452 390,305   423,419 450,802
Memorandum:          
Total excise receipts 26,520 27,040   28,250 29,480
Total customs duty receipts 8,870 9,250   9,720 10,430
Capital gains tax(c) 7,900 10,700   13,200 15,400
Medicare and DisabilityCare Australia levy receipts 9,960 10,470   14,480 15,190

(a) Net receipts from the MRRT are expected to be $0.7 billion in 2013‑14, $0.8 billion in 2014‑15, $1.1 billion in 2015‑16 and $1.8 billion in 2016‑17 which represent the net receipt impact across different revenue heads. These include offsetting reductions in company tax (through deductibility) and interactions with other taxes.

(a) Other alcoholic beverages are those not exceeding 10 per cent by volume of alcohol (excluding beer, brandy and wine).

(b) Capital gains tax is part of other individuals, companies and superannuation fund taxes.

Contingency Reserve

The Contingency Reserve provision in the PEFO is $477 million in 2013‑14, $2.9 billion in 2014‑15, $2.3 billion in 2015‑16 and $8.2 billion in 2016‑17.

The largest component of this is the 'conservative bias allowance', which makes provision for the tendency for estimates of expenses for existing Government policy to be revised upwards in the forward years. This allowance is unchanged from the 2013‑14 Budget and is set at zero in 2013‑14, ½ of a percentage point of total general government sector expenses (excluding GST payments to the States) in 2014‑15 ($1.8 billion), 1 per cent of expenses in 2015‑16 ($3.7 billion) and 2 per cent of expenses in 2016‑17 ($7.8 billion).

The Contingency Reserve also includes provisions of $2.0 billion over four years to 2016‑17 for a number of items including assumed continuation of some expiring National Partnerships; the effect of economic parameter revisions received late in the process; higher than estimated DisabilityCare Australia costs; negotiations with some State and Territory Governments regarding more efficient funding arrangements for veterans in public hospitals; and possible by‑election and redistribution costs for the Australian Electoral Commission. These items remain in the Contingency Reserve as they remain under negotiation and/or there is some uncertainty as to their final cost and outcome.

The Contingency Reserve also contains a number of items that cannot be disclosed for commercial‑in‑confidence or national security reasons.

Fiscal balance estimates

The fiscal balance deficit is expected to be $25.5 billion (1.6 per cent of GDP) in 2013‑14.

The fiscal balance is projected to return to surplus in 2015‑16, which is a year earlier than the underlying cash balance. This results from the timing difference between when revenues and expenses are recognised on an accrual basis, and when cash receipts and payments are recognised.

Movements in accrual revenue and expenses over the forward estimates are broadly consistent with the movements in cash receipts and payments.

Table 6 provides a reconciliation of the fiscal balance estimates.

Table 6: Reconciliation of 2013‑14 Budget, 2013 Economic Statement and 2013 PEFO fiscal balance estimates
  Estimates   Projections
  2013-14
$m
2014-15
$m
  2015-16
$m
2016-17
$m
2013-14 Budget fiscal balance -13,497 -6,255   5,955 10,819
Per cent of GDP -0.8 -0.4   0.3 0.6
Changes from 2013-14 Budget to 2013 ES          
Effect of policy decisions(a) -747 -3,779   4,761 6,411
Effect of parameter and other variations -11,308 -12,186   -8,936 -9,666
Total variations -12,055 -15,965   -4,175 -3,255
2013 ES fiscal balance -25,553 -22,220   1,780 7,564
Per cent of GDP -1.6 -1.4   0.1 0.4
Changes from 2013 ES to 2013 PEFO          
Effect of policy decisions(a)(b)          
Revenue 0 0   0 0
Expenses 4 60   51 -102
Net capital investment -3 -4   -2 -2
Total policy decisions impact on fiscal balance -1 -56   -49 104
Effect of parameter and other variations(b)          
Revenue 46 219   171 100
Expenses -30 -17   22 -57
Net capital investment 30 37   34 34
Total parameter and other variations impact on fiscal balance 46 198   116 123
2013 PEFO fiscal balance -25,508 -22,078   1,847 7,792
Per cent of GDP -1.6 -1.3   0.1 0.4

(a) Excludes secondary impacts on public debt interest of policy decisions and offsets from the Contingency Reserve for decisions taken.

(b) 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.

Net debt, net financial worth, net worth and net interest payments

In 2013‑14, net debt for the Australian Government general government sector is estimated to be $184.0 billion (11.7 per cent of GDP). Net financial worth is estimated to be —$295.5 billion, and net worth is estimated to be —$181.9 billion.

Net interest payments are estimated to be $8.4 billion in 2013‑14 (0.5 per cent of GDP). Interest payments largely relate to the public debt interest on government securities, based on the interest rates on the existing stock of Commonwealth Government Securities (CGS) and the prevailing market interest rates across the yield curve for future issuance of CGS. Assuming prevailing market yields, results in a weighted average yield of around 3.5 per cent for future issuance of Treasury Bonds in the forward estimates period.

Table 7 provides a summary of the Australian Government general government sector net worth, net financial worth, net debt and net interest payments.

Table 7: Australian Government general government sector net worth, net financial worth, net debt and net interest payments
  Estimates   Projections
  2013-14
$b
2014-15
$b
  2015-16
$b
2016-17
$b
Financial assets 260.8 279.2   305.1 341.1
Non-financial assets 113.6 116.8   119.0 120.5
Total assets 374.4 396.0   424.1 461.6
Total liabilities 556.3 596.9   622.2 652.5
Net worth -181.9 -200.9   -198.1 -190.9
Net financial worth(a) -295.5 -317.7   -317.1 -311.4
Per cent of GDP -18.9 -19.4   -18.4 -17.1
Net debt(b) 184.0 212.1   219.0 217.3
Per cent of GDP 11.7 13.0   12.7 12.0
Net interest payments 8.4 9.5   11.5 10.0
Per cent of GDP 0.5 0.6   0.7 0.6

(a) Net financial worth equals total financial assets minus total liabilities.

(b) Net debt equals the sum of deposits held, government securities, loans and other borrowing, minus the sum of cash and deposits, advances paid and investments, loans and placements.

Commonwealth Government Securities

The Australian Government issues debt securities to the public in the form of Treasury Bonds, Treasury Indexed Bonds (TIBs) and Treasury Notes, collectively known as CGS. CGS are reported on the balance sheet in market value terms
, consistent with the relevant accounting standards. The market value of CGS reflects prices in the secondary market, which are constantly changing with market conditions.

The face value of CGS on issue is the amount that the Government owes to investors, and is independent of fluctuations in market prices.4 The face value of CGS on issue fluctuates depending on the issuance of new securities and maturities of securities outstanding. The 'peak' amount of CGS on issue in any given year will depend on the timing of receipts, payments and CGS maturities.

The Commonwealth Inscribed Stock Act 1911 places a limit of $300 billion on the face value of CGS outstanding. Based on current estimates, CGS outstanding is expected to reach the limit within the 2013‑14 financial year (around December 2013) and will remain around that level from December 2013 onwards. CGS on issue is expected to increase over the forward estimates.

Table 8 contains projections of the face value of CGS on issue subject to the legislative limit. It is important to note that there is a debt issuance strategy for the budget year only. Projections beyond the budget year are based on a set of technical assumptions and will vary significantly with changes to budget estimates and projections.

Table 8: Projected face value of Commonwealth Government Securities(a)(b)
  2013-14
$b
2014-15
$b
2015-16
$b
2016-17
$b
End-of-year amount 290 330 350 370
Within-year peak(c) 300 350 370 Not available
Month of peak Dec-13 Apr-15 Apr-16 Not available

(a) Data in this table are rounded to the nearest $10 billion.

(b) These figures exclude TIBs issued before July 2008 which are not subject to the legislative limit. $4.6 billion of TIBs are not subject to the legislative limit in 2013‑14 and 2014‑15, and following a maturity in August 2015, $2.5 billion of TIBs will not be subject to the limit in 2015‑16 and 2016‑17.

(c) The precise within‑year timing of cash outlays and receipts are not known. Estimates of projected peaks of CGS on issue are therefore subject to considerable uncertainty.

Source: Australian Office of Financial Management.


4 For TIBs, the final repayment amount paid to investors includes an additional amount owing to inflation accretion over the life of the security.