The economic and fiscal context

Budget Review 2016–17 Index

Robert Dolamore

This brief provides an overview of the economic and fiscal context for the 2016–17 Budget.

The economic context

The domestic economic outlook

Over the past year Australia’s transition from mining driven growth to broader-based growth has gained some traction. In its latest Statement on Monetary Policy (SMP), the Reserve Bank of Australia (RBA) reports that the non-mining sector expanded at an above average rate in 2015, with growth strongest in services industries.[1] The impetus for a rebalancing towards non-mining sector activity has come primarily from stronger dwelling investment and household consumption supported by an accommodative monetary policy. The depreciation of the Australian dollar since early 2013 has also helped by boosting demand for Australia’s exports including non-mining export oriented industries such as tourism and higher education. This transition has played out against a backdrop of falling commodity prices, rapidly declining mining investment, expanding resources exports and at times volatile global financial, equity and commodity markets.

However, revisions to Treasury’s forecasts suggest the transition to broader-based growth has been slower than expected (Table 1). At the time of last year’s Budget, Treasury and the RBA were forecasting growth would strengthen to around its long-term average of 3.25 per cent in 2016–17. Treasury is now expecting the economy will grow by 2.5 per cent in 2016‑17, unchanged from the previous year. The RBA is slightly more optimistic, forecasting growth of 3 per cent in 2016‑17 (taking the mid-point of the RBA’s forecast range). Both Treasury and the RBA are forecasting the economy will grow by around 3 per cent in 2017‑18.

Table 1: Treasury and the Reserve Bank of Australia’s near-term growth forecasts (real GDP, per cent)

  2015–16 2016–17 2017–18
Treasury
Budget 2015‑16 2.75 3.25 3.5
Budget 2016‑17 2.5 2.5 3.0
The Reserve Bank of Australia
SMP* May 2015 2.0–3.0 2.5–4.0
SMP May 2016 2.5 2.5–3.5 2.5–3.5

* Statement on Monetary Policy.
Source: Australian Government, Budget strategy and outlook: budget paper no. 1: 2015–16, May 2015, Statement 1 Table 2, p. 1-7; Australian Government, Budget strategy and outlook: budget paper no. 1 2016–17, May 2016, Statement 1, Table 2, p. 1-8; Reserve Bank of Australia, Statement on Monetary Policy, May 2015, Table 6.1, p. 65; Reserve Bank of Australia, Statement on Monetary Policy, May 2016, Table 6.1, p. 61.

Growth strengthened in the second half of 2015, with particularly strong growth in the September quarter of 1.1 per cent. Growth moderated in the December quarter to around 0.6 per cent and the RBA considers this more moderate momentum has continued into 2016.[2]

The dynamics of growth are not expected to change markedly in the near-term. Growth is expected to continue to be supported by stronger household consumption, dwelling investment, resources exports and net services exports. While declining mining investment will continue to weigh on growth for some time yet, the RBA notes it is likely to have had its biggest impact on growth in 2015‑16.[3]

Some selected Australian economic indicators

Real GDP growth (per cent)[4]

  • Real GDP increased by 0.6 per cent in the December quarter. This was above market expectations.
  • Annual growth was 3 per cent, slightly higher than Treasury’s revised estimates of Australia’s potential growth rate of 2.75 per cent.
  • Consumer spending, dwelling investment and public spending all contributed to growth.
  • Declining business investment detracted from growth.

Real GDP growth (per cent)

Inflation (CPI*, per cent)[5]

  • Headline inflation fell by 0.1 per cent in the March quarter, which was sharply lower than market expectations.
  • In annual terms headline inflation was 1.3 per cent, down from 1.7 per cent in the December quarter. Although there were some temporary factors, the results suggest broad-based weakness in domestic cost pressures.
  • Underlying inflation was estimated to be around 1.5 per cent in annual terms down from around 2 per cent in the December quarter.

*Excluding interest and tax changes of 1999-00.

Inflation (CPI*, per cent)

Unemployment rate & participation rate (per cent)[6]

  • The unemployment rate (seasonally adjusted) decreased by 0.1 of a percentage point to 5.7 per cent in March.
  • The participation rate (seasonally adjusted) was steady at 64.9 per cent.
  • Employment increased by 26,100 in March, which was above market expectations.
  • Employment grew by 2 per cent in the year to March.

Unemployment rate & participation rate (per cent)

Australia’s terms of trade (index)[7]

  • In recent years large falls in commodity prices have driven a significant decline in Australia’s terms of trade.
  • In seasonally adjusted terms the terms of trade declined by 3.2 per cent in the December quarter and by 12 per cent annually.
  • Australia’s terms of trade have fallen by around 34 per cent since their peak in late 2011.

Australia’s terms of trade (index)

Reserve Bank of Australia (RBA) Index of Commodity Prices (SDR, 2014‑15 average =100)[8]

  • The RBA reports that preliminary estimates for April indicate the index rose by 2 per cent (on a monthly average basis) in Special Drawing Right (SDR) terms, after increasing by 6.3 per cent in March.[9]
  • Over the past year, the index has fallen by 9.4 per cent in SDR terms, led by declines in the prices of base metals.
  • The index has fallen by around 52 per cent in SDR terms since its peak in July 2011.

Reserve Bank of Australia (RBA) Index of Commodity Prices (SDR, 2014 15 average =100)

Labour Costs, Year-ended change (per cent)[10]

  • Labour cost pressures have been weak in recent times.
  • The wage price index (WPI) is calculated by comparing the cost of wages over time for the same work level and output.
  • The WPI increased by 0.5 per cent (seasonally adjusted) in the December quarter.
  • The annual change in the WPI was 2.2 per cent, the lowest rate of wages growth since the start of the series in 1998.

Labour Costs, Year-ended change (per cent)

A pick-up in non-mining business investment remains important to boosting productivity, growth and future living standards. However, as the Government notes in Budget Strategy and Outlook: Budget Paper No. 1: 2016‑17, this has been slower than expected.[11]

It appears unlikely there will be a strong lift in non-mining business investment in the near term. Budget Paper No. 1 cites the Australian Bureau of Statistics (ABS) Private New Capital Expenditure and Expected Expenditure Survey (CAPEX) and Treasury’s own business liaison programme as indicating that businesses are continuing to wait before committing to new investment.[12] The RBA also considers that the outlook for non-mining business investment is subdued but observes:

However, very low interest rates and the depreciation of the Australian dollar over the past few years have supported an improvement in business conditions (which is clearly evident in the various survey measures and consistent with the rise in employment) and there is evidence that investment has increased in areas of the economy that have been less affected by the decline in mining investment and commodity prices.[13]

The March quarter inflation figures were sharply lower than expected. The headline consumer price index (CPI) fell by 0.1 per cent (in seasonally adjusted terms) to be 1.3 per cent higher over the year. The RBA reports that although there were some temporary factors (for example, lower fuel prices) the data suggest there has been broad-based weakness in domestic cost pressures.[14] A negative quarterly CPI reading is relatively rare. In the last 20 years there have been only three other occasions when the quarterly CPI reading was negative. Underlying inflation decreased to be around 0.25 per cent in the March quarter and about 1.5 per cent over the year.[15] The softness of the latest inflation figures prompted the RBA Board to cut the cash rate by 25 basis points to a new historic low of 1.75 per cent on 3 May 2016.[16]

Many central banks in recent years have been grappling with low inflation.[17] Indeed, the International Monetary Fund (IMF) reports in its latest World Economic Outlook that in the advanced economies underlying inflation remains well below central bank targets and deflationary pressures are a risk. [18] Against this international backdrop, European Central Bank President, Mario Draghi, outlined in a speech earlier this year why it is important for central banks to act within their mandates to ensure transitory deflationary pressures do not lead to permanently lower inflation.[19]

In its latest SMP the RBA revised down its inflation forecasts. [20] Headline inflation is expected to converge towards underlying inflation over the forecast period. Both measures are forecast to be still below 2 per cent (taking the midpoint of the RBA’s forecast band) by December 2016 and at the bottom of the RBA’s inflation target band of 2 to 3 per cent out to June 2018 (again taking the midpoint of the RBA’s forecast band). The downward revisions to the RBA’s inflation forecasts reflect a view that domestic cost pressures, including wages growth, will pick-up more gradually than previously thought.

Labour market conditions have been noticeably stronger than previously forecast adding weight to the view that Australia’s transition to broader-based growth has gained some traction. In last year’s Budget Treasury forecast that employment would grow by 1.5 per cent in 2015‑16 and the unemployment rate would be 6.5 per cent in the June quarter.[21] The latest Budget forecasts show stronger employment growth of 2 per cent in 2015–16 and a lower unemployment rate of 5.75 per cent.[22]

Over the past year employment growth has been supported by moderate wage growth and the transition to more labour-intensive sectors of the economy such as household and business services.

Both Treasury and the RBA are expecting labour market conditions will continue to improve in 2016‑17, although at a slower pace than in 2015‑16. Treasury is forecasting employment will grow by 1.75 per cent in 2016‑17 and the unemployment rate will fall slightly to 5.5 per cent in the June quarter. This is broadly consistent with the RBA’s view.

Just as rising commodity prices and the upswing in mining investment affected some jurisdictions more than others, the downswing of the mining boom has been felt unevenly across Australia. During the upswing the resource rich jurisdictions of Western Australia (WA), Queensland and the Northern Territory (NT) benefited from the direct and indirect effects of surging mining investment and employment. While other jurisdictions also benefited many trade exposed non-mining industries in the south east of Australia found conditions difficult as the boom drove the Australian dollar higher. More recently economic activity outside the resource-rich jurisdictions has picked up helped in part by stronger demand for household and business services. In contrast WA has faced a challenging transition as mining investment and employment unwinds.

One window on the regional effects of Australia’s current transition is provided by CommSec’s quarterly State of the States report.[23] CommSec assesses the economic performance of Australia’s states and territories using eight indicators: economic growth; retail spending; equipment investment; unemployment; construction work done; population growth; housing finance and dwelling investment. In its latest report CommSec found New South Wales (NSW), Victoria and the Australian Capital Territory (ACT) held the first three spots in terms of overall economic performance. Three years ago WA and the NT held the first two spots respectively.[24] WA now ranks 6th in terms of overall economic performance and the NT ranks 4th.

Risks

On the domestic front there are a number of risks to the economic outlook. On the upside it is possible that if wages growth strengthens by more than currently forecast this would likely feed through to stronger household consumption, which would boost domestic demand.

A key downside risk is around the timing of the pick-up in non-mining sector business investment. One plausible scenario is that the support to growth coming from stronger dwelling investment and a lower Australian dollar wanes over coming months and consequently pushes the pick-up in non-mining sector business investment further out.

There is a risk that a sharp downturn in the Australian housing market would expose households and the banking sector to increased stress. Tightening credit conditions would weigh on domestic demand as would the negative confidence and wealth effects a downturn of this nature would have.

Finally, it is possible that like recent international experience, deflationary pressures in Australia prove more stubborn than currently thought. Some economists have raised the possibility that deflationary pressures in the advanced economies reflect structural factors (for example related to demographics, the long-term cycle in commodity prices, technological change and the effects of globalisation).[25] To the extent this is the case there is a risk these pressures may persist and become embedded in people’s expectations and decision-making. If deflationary pressures prove to be less transitory than currently thought it would further complicate an already challenging macroeconomic policy environment.

The global economic outlook

The global outlook matters because as a relatively small open economy Australia is affected by developments overseas through financial, trade and investment linkages and confidence and wealth channels. Since the beginning of the year the economic outlook for the global economy has become more subdued. The New Year saw one of the worst stock market sell-offs since the 2008 global financial crisis (GFC).[26] Initially, global markets focussed on slowing growth in China and rising vulnerabilities in emerging market economies more generally. This was followed by heightened concerns about bank profitability in an environment in which the outlook for the global economy looked more subdued and there were increased expectations of further reductions in interest rates in some of the major economies.

Since then global markets have calmed but there remain concerns about the extent to which market sentiment remains relatively unanchored, lacking a clear sense of what the new long-term sustainable growth path is.[27]

While forecasters have trimmed their near-term global growth forecasts, growth is still expected to strengthen gradually over the next couple of years (Table 2). The IMF considers this improvement is contingent on growth picking up in emerging market and developing economies as the outlook for advanced economies remains relatively subdued.[28]

Treasury’s growth forecasts for the global economy are broadly in line with those of the IMF (Table 2). However, Treasury is a little less optimistic about the near-term growth prospects of the United States (US). Forecasts from Oxford Economics, a private global advisory firm, are provided in Table 2 as a point of comparison. The summary below draws on all three sources.

  • United States: growth has slowed in recent quarters but is expected to firm in the second half of 2016. Subdued global growth and a strong US dollar have weighed on net exports and manufacturing investment while lower oil prices have triggered a contraction in investment in the energy sector. Against this growth is being supported by solid labour market gains, moderate growth in consumer spending, accelerating housing activity and strengthening balance sheets.
  • China: growth is expected to slow in 2016 in line with official growth targets. The Chinese authorities have provided some additional stimulus which is expected to support growth in the near-term. This stimulus has included boosting credit growth, easing housing policies and increasing infrastructure investment. Growth is also being supported by robust consumer spending and an expanding services sector. However, recent stimulus measures are unlikely to be sustainable in the longer-term and China continues to face significant challenges including a sizeable debt burden and the need to transition to more balanced and sustainable growth.
  • Japan: the recovery in the Japanese economy stalled mid-way through 2015 in the face of weaker demand from China and other Asian economies and sluggish private consumption. The near-term outlook for the Japanese economy remains relatively subdued with the recent strength of the Japanese yen weighing on exports and any improvement in domestic demand looking relatively muted at this stage.
  • India: growth continues to be robust and Treasury and the IMF are forecasting it will continue to strengthen over the next couple of years. Most of the impetus for growth recently has come from household consumption and public investment. This is expected to broaden as private investment and net exports make a stronger contribution to growth helped by recent reforms. Oxford Economics is a little less optimistic forecasting growth will soften slightly over the forecast period.
  • Euro Area: the modest recovery in the Euro Area is expected to continue with weaker external demand offset by the positive effects of accommodative monetary policy, lower energy prices, a modest fiscal expansion and supportive financial conditions.

Table 2: Treasury, IMF and Oxford Economics international growth forecasts (per cent)

  2015 2016 2017 2018
United States        
   Treasury 2.4 2.0 2.25 2.25
   IMF 2.4 2.4 2.5 2.4
   Oxford Economics 2.4 2.0 2.4 2.3
Euro area        
   Treasury 1.6 1.5 1.5 1.5
   IMF 1.6 1.5 1.6 1.6
   Oxford Economics 1.5 1.6 1.8 1.7
China        
   Treasury 6.9 6.5 6.25 6.0
   IMF 6.9 6.5 6.2 6.0
   Oxford Economics 6.9 6.5 6.2 5.9
Japan        
   Treasury 0.5 0.5 0.25 0.5
   IMF 0.5 0.5 -0.1 0.4
   Oxford Economics 0.5 0.5 0.3 0.6
India        
   Treasury 7.3 7.5 7.5 7.75
   IMF 7.3 7.5 7.5 7.6
   Oxford Economics 7.3 7.4 7.2 7.0
World        
   Treasury 3.1 3.25 3.5 3.75
   IMF 3.1 3.2 3.5 3.6
   Oxford Economics 3.0 3.0 3.5 3.7

Source: Australian Government, Budget strategy and outlook: budget paper no. 1 2016–17, 2016, Statement 2, Table 2, p. 2-9; International Monetary Fund, World economic outlook: too slow for too long, April 2016; Table 1.1, p. 2.; Oxford Economics, World Economic Prospects, April 2016.

In recent years Australia has benefited from growth in its major trading partners being higher than the world as a whole.[29] As the RBA notes this has in part reflected the increasing share of Australia’s exports going to China.[30] The RBA is forecasting trading partner growth a bit below 4 per cent over the next couple of years.[31]Treasury is forecasting that growth in Australia’s major trading partners will remain around 4 per cent in the forecast period.[32]

Risks

The global economy also poses a number of risks for the Australian economy. On the upside it is possible a lower exchange rate than currently forecast could provide additional support to Australia’s transition to broader based growth by boosting demand in Australia’s trade exposed non-mining sectors.

Even though concerns about the Chinese economy appear to have eased recently, the potential for a sharp downturn in China remains the main perceived near-term risk to the global economy. If this was to eventuate it would trigger renewed volatility in global markets and quickly flow through to China’s major trading partners. Australia would be hit by weaker demand for its commodity and other exports, weaker Chinese investment and the negative confidence and wealth effects these developments would cause. Australia would also be hit by the flow-on effects of a downturn in the Chinese economy for the Asian region and the global economy more generally.

There is a risk of persistently slow growth among the advanced economies and that growth is not only slow but these economies struggle to fully use their productive potential. It is possible that structural factors are at work; for example, those related to demographics, debt levels, technological change and inequality, which could result in a sustained weakening of demand relative to supply in these economies.

If Britain votes to exit the European Union in June 2016 it is likely there would be considerable uncertainty about the implications for Britain and Europe. There is a risk that this could trigger further volatility in global markets with negative flow-on effects for the rest of the world.

Finally, geopolitical tensions (for example in the Middle East and the South China Sea) have the potential to disrupt global financial, investment and trade flows and dampen confidence.

Australia’s longer-term economic outlook

The longer-term challenges and opportunities that Australia faces are also an important backdrop to the budget. These longer-term influences encompass the economic, social and environmental dimensions of community wellbeing. Generally, they change little from year to year but nonetheless over time have the potential to have a large cumulative impact on Australia’s economic prosperity and future living standards.

The list of challenges and opportunities that are likely to shape Australia’s longer-term outlook include:

  • an ageing population
  • the economic rise of Asia
  • climate change
  • natural resource depletion
  • changing patterns of global demand and
  • new knowledge and technologies.

Of a different nature, but also important, is the risk of external shocks to the Australian economy. They are hard to predict but nevertheless occur not infrequently.

The budget provides an important mechanism through which governments can try to manage the effects of longer-term influences. For example, through long-term investment, governments can build the capabilities needed to make the most of expected future opportunities and the flexibility and resilience needed in the face of less favourable long‑term trends.

In the 2016–17 Budget the Government set out its economic plan, which, it says, seeks to facilitate Australia’s transition to a stronger and more diversified economy.[33] The key elements of this plan are a focus on jobs and economic growth; the tax system; and seeking to balance the budget and reduce the burden of long-term debt.

The implications of the economic outlook for the Budget

Treasury’s assessment of the economic outlook is reflected in the key economic parameters used to estimate revenue and expenditure items. Treasury provides forecasts of the key macroeconomic parameters for the budget year and the following financial year and projections of these parameters for the following two financial years.

Table 3 shows how Treasury’s forecasts of major economic parameters have tracked over the past year. Overall the revisions to the 2016‑17 forecasts suggest a softer reading of Australia’s economic conditions. Real GDP growth, the CPI, the wage price index and nominal GDP growth have all been revised down. Against this, the unemployment rate has been revised down reflecting stronger labour market conditions and the terms of trade are now forecast to increase slightly.

The fiscal estimates and projections are sensitive to changes in the key economic parameters. Even relatively small changes in the parameters can affect the budget bottom line.

For example, in Statement 2 of Budget Paper No. 1, the Government highlights the uncertainty around movements in commodity prices.[34] Forecasts of commodity prices have an important bearing on the outlook for nominal GDP growth and hence government revenue. The Budget assumes the price of iron ore will be US$55 per tonne Free on Board (FOB), compared with US$S39 per tonne FOB in MYEFO 2015–16. The results of a sensitivity analysis presented in the Budget reveal that a US$10 per tonne reduction/increase in the iron ore price results in just over a $6 billion reduction/increase in nominal GDP in 2016‑17.[35]

Statement 7 of Budget Paper No. 1 provides a detailed analysis of the historical performance of budget forecasts and estimates of uncertainty around the forecasts.[36] It also provides a sensitivity analysis of the Budget estimates to changes in key assumptions as required under the Charter of Budget Honest Act 1998. For example, the sensitivity analysis includes an assessment over the forecast period of the impact on GDP, labour market conditions and prices of a permanent 10 per cent fall in world prices for non-rural commodity exports through 2016‑17 (which is consistent with a fall in the terms of trade of 4.75 per cent and a reduction in nominal GDP growth of 1 per cent by 2017‑18).[37] The analysis shows the overall impact of the fall in the terms of trade is a decrease in the underlying cash balance of around $2.2 billion in 2016‑17 and around $5.4 billion in 2017‑18.[38]

The Fiscal context

The Government’s fiscal strategy and broader policy agenda

The fiscal strategy

Consistent with the requirements of the Charter of Budget Honest Act 1998, the Government has set out in the Budget its medium-term fiscal strategy. The Government’s objective is to ‘achieve budget surpluses, on average, over the course of the economic cycle’.[39] The details of the fiscal strategy can be found in Statement 3 of Budget Paper No. 1 (see box 1 on page 3-7).

Table 3: Treasury forecasts of major economic parameters (per cent)

  2014–15 2015–16 2016–17 2017–18 2018–19 2019–20
Real GDP            
   Budget 2015–16 2.5 2.75 3.25 3.5 3.5  
   MYEFO 2015–16 2.2* 2.5 2.75 3.0 3.0  
   Budget 2016–17 2.2* 2.5 2.5 3.0 3.0 3.0
Employment            
   Budget 2015–16 1.5 1.5 2.0 2.0 2.0  
   MYEFO 2015–16 1.5* 2.0 1.75 1.5 1.5  
   Budget 2016–17 1.6* 2.0 1.75 1.75 1.25 1.5
Unemployment Rate            
   Budget 2015–16 6.25 6.5 6.25 6.0 5.75  
   MYEFO 2015–16 6.0* 6.0 6.0 5.75 5.5  
   Budget 2016–17 6.1* 5.75 5.5 5.5 5.5 5.5
Consumer price index            
   Budget 2015–16 1.75 2.5 2.5 2.5 2.5  
   MYEFO 2015–16 1.5* 2.0 2.25 2.5 2.5  
   Budget 2016–17 1.5* 1.25 2.0 2.25 2.5 2.5
Wage price index            
   Budget 2015–16 2.5 2.5 2.75 2.75 3.25  
   MYEFO 2015–16 2.3* 2.5 2.75 2.75 3.0  
   Budget 2016–17 2.3* 2.25 2.5 2.75 3.25 3.5
Nominal GDP            
   Budget 2015–16 1.5 3.25 5.5 5.25 5.5  
   MYEFO 2015–16 1.6* 2.75 4.5 5.0 5.25  
   Budget 2016–17 1.6* 2.5 4.25 5.0 5.0 5.0
Terms of trade            
   Budget 2015–16 -12.25 -8.5 0.75      
   MYEFO 2015–16 -10.2* -10.5 -2.25      
   Budget 2016–17 -10.3* -8.75 1.25 0.0    

* outcomes

Source: Australian Government, Budget strategy and outlook: budget paper no. 1: 2015–16, 2015, Statement 1, Table 2, p. 1-7, Statement 2, Table 1, p. 2-5; S Morrison (Treasurer) and M Cormann (Minister for Finance), Mid-year economic and fiscal outlook 2015–16, 2015, Table 1.2, p. 3, Table 2.2, p. 9; Australian Government, Budget strategy and outlook: budget paper no. 1: 2016–17, 2016, Statement 1, Table 2, p. 1-8, Statement 2, Table 1, p. 2-6.

Since the 2014–15Budget, the Government has also set itself a budget repair strategy, which is consistent with and complements the medium-term fiscal strategy. When originally introduced the objective of the budget repair strategy was ‘to deliver budget surpluses building to at least 1 per cent of GDP by 2023‑24’.[40] In the 2015‑16 MYEFO the Government moved away from specifying a target date, with the goal becoming ‘to deliver budget surpluses building to at least 1 per cent of GDP as soon as possible’.[41] This remains the objective of the Government’s budget repair strategy as set out in Budget Paper No. 1 (see box 1 on page 3-7).

In the 2015–16 Budget the Government was projecting the underlying cash balance would improve over the period to 2018‑19, reaching a small surplus by 2019‑20.[42] The Government’s latest medium-term projections show that the underlying cash balance is not expected to reach a surplus of around 0.2 per cent GDP until 2020‑21.[43] After that the surplus is projected to peak at around 0.3 per cent of GDP in 2021‑22 before declining gradually over the period to 2026‑27.[44] Given the difficulty of forecasting beyond the forward estimates period there is considerable uncertainty about whether even these relatively modest surpluses will be achieved.

The Government acknowledges the medium-term outlook for the underlying cash balance does not meet key elements of its fiscal strategy and much more needs to be done.[45]

How much additional fiscal adjustment is needed in future budgets will, in part, depend on how strongly the economy grows over the medium-term. If economic growth turns out to be stronger than currently projected, the size of the fiscal adjustment task will be smaller than would otherwise be the case.

A key element of the Government’s budget repair strategy is a commitment to offsetting all new policy decisions. In Budget Paper No. 1 the Government notes that all new spending measures in the Budget have been offset by savings in payments and not by policy decisions to increase tax revenue.[46]

The Government has also indicated that it remains committed to implementing Budget measures which have been delayed in the Senate.[47] The Government estimates that the impact of the delays will be to worsen the budget bottom line by $2.2 billion over the five years to 2019‑2020.[48]

The Government’s broader policy agenda

In Budget Paper No. 1 the Government highlights the ways it is redirecting government spending to investments which it considers will boost productivity and workforce participation. In this regard, key initiatives include:

  • The ten year enterprise tax plan—aims to support growth, higher wages and jobs by lowering the corporate tax rate over time to an internationally competitive level and provides for early cuts for smaller businesses. The Government claims this initiative will deliver a permanent increase to GDP of just over one per cent in the long term.
  • Changes to superannuation—aims to improve the sustainability, flexibility and integrity of the superannuation system. The Government has announced it is introducing or lowering transfer balance and contribution caps and providing savings support to those who need it most. The Government has also announced changes to allow people to make catch-up contributions; allow all individuals under the age of 75 years to claim a tax deduction for personal contributions; and extend the eligibility for individuals to claim a tax offset for contributions made to their spouse’s superannuation.
  • Youth Employment Package—aims to help young people become more competitive in the labour market by enhancing their skills, providing opportunities for work experience and supporting their transition from welfare to work.
  • Infrastructure spending—the Government is investing $50 billion in infrastructure from 2013‑14 to 2019‑20. It reports in the Budget that around 100 major projects are currently under construction and 80 are in the pre-construction phase.
  • Defence investments—the Government has provided an additional $29.9 billion over the period to 2025‑26 for defence investments in order to strengthen Australia’s defence capabilities and support Australia’s advanced local defence manufacturing industry.
  • Financial assistance to hospitals and schools—with the Government linking three-year funding arrangements in these areas to reforms which focus on improving quality and patient safety in hospitals and improving student outcomes in schools.

As part of this year’s Budget Review, the Parliamentary Library’s research specialists have prepared briefs on the major policy decisions taken in the Budget.

The fiscal position

As this year’s Budget is the final budget delivered to the 44th Parliament it is appropriate to look back at how the budgetary position has evolved since the Pre-Election Economic and Fiscal Outlook (PEFO) was released in August 2013. The brief then considers in more detail the fiscal position and outlook set out in the Budget.

A look back – PEFO to Budget 2015–16

The Charter of Budget Honesty Act 1998 requires the Secretary to the Treasury and the Secretary of the Department of Finance to publicly release a PEFO report within 10 days of the issue of the writ for a general election. Accordingly, PEFO was released after the writ was issued for the 2013 election. It provided updated information about Australia’s economic and fiscal outlook, including fiscal projections out to 2016‑17.

This section briefly outlines how estimates of two headline fiscal measures, namely the underlying cash balance and general government sector net debt, have changed since PEFO.

The underlying cash balance

At the time of PEFO, Australia’s underlying cash balance was estimated to turn around from a deficit of $30.1 billion in 2013‑14 to a small surplus of $4.2 billion by 2016‑17. Over the four years to 2016‑17 the accumulated deficits were projected to total $54.6 billion.

Since PEFO there has been significant fiscal slippage (Figure 1). The size of budget deficits over this period has been progressively revised up. The latest figures show the deficit in 2013‑14 was $48.5 billion some $18.3 billion higher than estimated in PEFO. In 2016‑17 the deficit is now estimated to be $37.1 billion some $41.3 billion higher than at the time of PEFO. The latest numbers also reveal that over the four years to 2016‑17 accumulated deficits total $163.4 billion some $108.8 billion more than projected at the time of PEFO.

Revisions to the budget bottom-line reflect the impact of policy decisions and/or parameter and other variations. Table 4 uses information provided in successive budget and MYEFO documents to piece together as much of a reconciliation of progressive revisions to the underlying cash balance as possible. For 2013‑14 and 2014‑15 it is only possible to provide a partial reconciliation.

Table 4 shows that over the four years to 2016‑17, parameter and other variations account for the bulk of the fiscal slippage over this period. A large part of this slippage is likely to be explained by lower than expected commodity prices which have consistently resulted in significant write-downs in government revenue.

The revisions to 2013‑14 stand out as being different to that of the other three years of this period (Table 4). To the extent that it is possible to attribute slippage between the effects of policy decisions and parameter and other variations for 2013‑14, the figures suggest policy decisions accounted for over half the fiscal slippage. In the other three years policy decisions typically account for a much smaller share of the total fiscal slippage.

Figure 1: Revisions to the underlying cash balance ($m)

Figure 1: Revisions to the underlying cash balance ($m)

Source: The Secretary to the Treasury and The Secretary to the Department of Finance and Deregulation, Pre-Election Economic and Fiscal Outlook 2013, The Commonwealth of Australia, August 2013, Table 1, p. 1; J Hockey (Treasurer) and M Cormann (Minister for Finance), Mid-year economic and fiscal outlook 2013-14, December 2013, Appendix D, Table D1, p. 265; Budget strategy and outlook: budget paper no. 1: 2014-15, May 2014, Statement 10, Table 1, p. 10‑7; J Hockey (Treasurer) and M Cormann (Minister for Finance), Mid‑year economic and fiscal outlook 2014‑15, December 2014, Appendix D, Table D1, p. 267; Australian Government, Budget strategy and outlook: budget paper no. 1 2015–16, May 2015, Statement 10, Table 1, p. 10-7; S Morrison (Treasurer) and M Cormann (Minister for Finance), Mid-year economic and fiscal outlook 2015–16, December 2015, Appendix D, Table D.1, p. 291; Australian Government, Budget strategy and outlook: budget paper no. 1: 2016–17, May 2016, Statement 10, Table 1, p. 10-6.

Looking further out, estimates of the size of the underlying cash balance deficit for 2017‑18 and 2018‑19 have also been progressively revised up (figure 1 and table 4). For both years parameter and other variations account for over 90 per cent of the slippage. The revisions since Budget 2015‑16 are discussed in more detail below.

General government sector net debt

At the time of PEFO, general government sector net debt was projected to increase from $184 billion in 2013‑14 to a peak of $219 billion in 2015‑16 before decreasing slightly to $217.3 billion in 2016‑17.

The latest figures reveal Australia’s net debt position has deteriorated markedly from what was projected at the time of PEFO (Figure 2). Net debt reached $202.5 billion in 2013‑14, some $18.5 billion more than estimated in PEFO. It is estimated to increase to $326 billion in 2016‑17, some $108.7 billion more than projected in PEFO.

The latest budget figures show net debt peaking at $356.4 billion (18.8 per cent of GDP) in 2018‑19 before decreasing slightly to $355.1 billion (17.8 per cent of GDP) in 2019‑20. Changes in the Commonwealth’s balance sheet since Budget 2015‑16 are discussed in more detail below.

Table 4: Revisions to the Underlying Cash Balance (UCB): Pre-Election Economic and Fiscal Outlook (PEF0) 2013 to Budget 2016–17

  2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20
PEFO 2013 UCB -30,142 -23,981 -4,662 4,199      
 Policy changes -10,266 -655 -1,505 -1,274      
 Parameter & other variations -6,582 -9,272 -17,916 -20,592      
MYEFO 2013-14 UCB -46,989 -33,907 -24,083 -17,668      
 Policy changes -514 1,718 5,934 10,414      
 Parameter variations -2,352 2,416 1,065 -3,309      
Budget 2014-15 UCB -49,855 -29,773 -17,084 -10,562 -2,825    
 Policy changes   -2,314 -2,195 -501 950    
 Parameter & other variations   -8,275 -11,960 -9,781 -9,606    
MYEFO 2014-15 UCB   -40,362 -31,239 -20,844 -11,480    
 Policy changes   -578 -4,525 -2,547 -1,665    
 Parameter & other variations   -181 650 -2,445 -1,251    
Budget 2015-16 UCB   -41,121 -35,115 -25,836 -14,396 -6,905 1,300
 Policy changes     -2,516 -2,427 302 921 na
 Parameter & other variations     231 -5,404 -8,927 -8,246 na
MYEFO 2015-16 UCB     -37,399 -33,667 -23,021 -14,229 -7,300
 Policy changes     -195 -3,070 384 -1,494 5,894
 Parameter & other variations     -2,352 -343 -3,484 319 -4,549
Budget 2016-17 UCB -48,456 -37,867 -39,946 -37,081 -26,123 -15,406 -5,955
               
Revisions: PEFO 2013 to
Budget 2016-17 (as far as possible)
             
 Policy changes -10,780 -1,829 -5,002 595      
 Percentage of total revisions 54.7 10.7 14.2 -1.4      
 Parameter & other variations -8,934 -15,312 -30,282 -41,874      
 Percentage of total revisions 45.3 89.3 85.8 101.4      
 Total revisions -19,714 -17,141 -35,284 -41,279      

Source: The Secretary to the Treasury and The Secretary to the Department of Finance and Deregulation, Pre-Election Economic and Fiscal Outlook 2013, The Commonwealth of Australia, August 2013, Table 7, p. 16; J Hockey (Treasurer) and M Cormann (Minister for Finance), Mid-year economic and fiscal outlook 2013–14, December 2013, Table D5, p. 269; Budget strategy and outlook: budget paper no. 1: 2014–15, May 2014, Statement 10, Table 5, p. 10-11; J Hockey (Treasurer) and M Cormann (Minister for Finance), Mid‑year economic and fiscal outlook 2014‑15, December 2014, Appendix D, Table D6, p. 273; Australian Government, Budget strategy and outlook: budget paper no. 1 2015–16, May 2015, Statement 10, Table 1, p. 10-7; Mid-year economic and fiscal outlook 2015–16, December 2015, Appendix D, Table D.4, p. 297; Budget strategy and outlook: budget paper no. 1: 2016–17, May 2016, Statement 10, Table 4, p. 10-12.

Figure 2: Revisions to general government sector net debt ($m)

Figure 2: Revisions to general government sector net debt ($m)

Source: The Secretary to the Treasury and The Secretary to the Department of Finance and Deregulation, Pre-Election Economic and Fiscal Outlook 2013, The Commonwealth of Australia, August 2013, Table 7, p. 16; J Hockey (Treasurer) and M Cormann (Minister for Finance), Mid-year economic and fiscal outlook 2013–14, Table D5, p. 269; Budget strategy and outlook: budget paper no. 1: 2014–15, 2014, Statement 10, Table 5, p. 10-11; J Hockey (Treasurer) and M Cormann (Minister for Finance), Mid‑year economic and fiscal outlook 2014‑15, Appendix D, Table D6, p. 273; Australian Government, Budget strategy and outlook: budget paper no. 1 2015–16, 2015, Statement 10, Table 1, p. 10-7; Mid-year economic and fiscal outlook 2015–16, 2015, Appendix D, Table D.4, p. 297; Budget strategy and outlook: budget paper no. 1: 2016–17, 2016, Statement 10, Table 4, p. 10-12.

Budget 2016‑17: The fiscal position and outlook

The underlying cash balance

The Budget forecasts an underlying cash deficit of $37.1 billion (2.2 per cent of GDP) in 2016‑17, improving to a projected deficit of $6.0 billion (0.3 per cent of GDP) in 2019‑20 (Table 5).

Table 5: The general government sector: The underlying cash balance

  2014–15 2015–16 2016–17 2017–18 2018–19 2019–20
Underlying cash balance
($m)
-37,867 -39,946 -37,081 -26,123 -15,406 -5,955
Per cent of GDP -2.4 -2.4 -2.2 -1.4 -0.8 -0.3

Source: Australian Government, Budget strategy and outlook: budget paper no. 1: 2016–17, 2016, Statement 10, Table 1, p. 10-6.

The size of the projected fiscal consolidation between 2016‑17 and 2019‑20 is around 1.9 per cent of GDP. By way of comparison the size of the fiscal consolidation achieved between 2013‑14 and 2016‑17 is estimated to have been 0.9 per cent of GDP.

The pace of fiscal consolidation decreases slightly over the forward estimates period being around 0.8 per cent of GDP between 2016‑17 and 2017‑18; 0.6 per cent of GDP between 2017‑18 and 2018‑19; and 0.5 per cent of GDP between 2018‑19 and 2019‑20.

General government sector receipts

The revenue side accounts for most of the projected fiscal consolidation between 2016‑17 and 2019‑20, with general government sector receipts projected to increase by around 1.2 per cent of GDP over the period (Table 6). Taxation receipts are projected to increase by 1.3 per cent of GDP and non-taxation receipts to decrease slightly by 0.1 per cent of GDP.

Table 6: General government sector: Taxation receipts, non-taxation receipts and total receipts

  2014–15 2015–16 2016–17 2017–18 2018–19 2019–20
Taxation receipts
($m)
353,494 364,507 382,769 410,165 438,821 468,278
Per cent of GDP 22.0 22.1 22.2 22.7 23.1 23.5
Non-taxation receipts
($m)
24,807 23,520 28,515 27,221 31,100 32,464
Per cent of GDP 1.5 1.4 1.7 1.5 1.6 1.6
Total receipts
($m)
378,301 388,027 411,284 437,385 469,921 500,742
Per cent of GDP 23.5 23.5 23.9 24.2 24.8 25.1

Source: Australian Government, Budget strategy and outlook: budget paper no. 1: 2016–17, 2016, Statement 10, Table 3, p. 10-10.

Given that the Budget relies heavily on stronger taxation receipts over the next four years to substantially reduce the underlying cash deficit, much would appear to hinge on the Budget’s revenue forecasts. These forecasts are sensitive to the underlying assumptions made about nominal economic growth and wages growth:

  • Nominal GDP growth provides a rough indication of growth in the size of the tax base. Treasury is forecasting nominal GDP growth of 4.25 per cent in 2016‑17 and 5 per cent a year for the remainder of the forward estimates period. Nominal GDP growth in turn is sensitive to changes in the terms of trade. Treasury is forecasting the terms of trade to rise slightly by 1.25 per cent in 2016‑17 after declining by 8.75 per cent in 2015‑16. The RBA’s latest forecasts of the terms of trade suggest Treasury’s forecasts are plausible given recent improvements in commodity prices.[49]
  • The assumptions made about wages growth are important for forecasting income tax revenue. Treasury is forecasting wages growth of 2.5 per cent in 2016‑17, 2.75 per cent in 2017‑18, 3.25 per cent in 2018‑19 and 3.5 per cent in 2019‑20. The relatively modest pick-up in wages growth over the next two years is plausible given that there is still a degree of spare capacity in the labour market. It is also possible that wages growth may increase thereafter if labour market conditions tighten as growth picks up.

While these assumptions are plausible, at this stage the balance of risk is on the downside.

General government sector payments

General government sector payments are projected to fall by 0.6 per cent of GDP between 2016‑17 and 2019‑20 (Table 7)

Real expenditure growth between 2016‑17 and 2019‑20 is forecast to average 2 per cent a year. This compares with average real growth between 2013‑14 and 2016‑17 of 3 per cent a year. This suggests that the Government will need to maintain considerable fiscal discipline if it is to reduce expenditure as a share of GDP over the forward estimates period.

Table 7: General government sector: Payments

  2014–15 2015–16 2016–17 2017–18 2018–19 2019–20
Payments
($m)
412,079 424,961 445,045 459,934 481,484 502,556
Per cent of GDP 25.6 25.8 25.8 25.5 25.4 25.2

Source: Australian Government, Budget strategy and outlook: budget paper no. 1: 2016–17, 2016, Statement 10, Table 1, p. 10-6.

The structural budget balance

In Statement 3 of Budget Paper No. 1, the Government reports on the structural budget balance.[50] Estimates of the structural budget balance remove the temporary changes to revenues and expenditures—due to fluctuations in commodity prices for example—and the extent to which economic output deviates from its potential level due to the economic cycle. As the Government notes, when considered in conjunction with other measures, estimates of the structural budget balance can provide insights into the sustainability of current fiscal settings.

Estimates of the structural budget balance over the next decade are marginally lower than at the time of the 2015‑16 MYEFO . This reflects that Treasury has revised down its terms of trade outlook over the medium-term, which flows through downward revisions to structural revenues.

The Budget is projecting that the overall level of the structural budget balance will improve from a deficit of around 2 per cent of GDP in 2015‑16, to a series of small surpluses from 2020‑21 onwards, converging to the underlying cash balance.[51]

How has the short-term fiscal outlook changed?

Figure 3 provides a snapshot of how the outlook for the underlying cash balance has changed since Budget 2015‑16. Over the four years to 2018‑19, it has worsened since last year’s budget. While the forecasts and projections still show a consistent pattern on gradually declining cash deficits, in dollar terms, the deficits in 2018‑19 are now projected to be more than twice as large as they were in the 2015-16 Budget.

Figure 3: Revisions to the underlying cash balance ($m)

Figure 3: Revisions to the underlying cash balance ($m)

Source: Australia Government, Budget strategy and outlook: budget paper no. 1: 2016–17, 2016, Statement 3, Table 5, p. 3-24.

In last year’s budget, the size of the accumulated budget deficits over the four years to 2018‑19 was $82.3 billion. This figure was revised up in MYEFO 2015‑16 to $108.3 billion and in the 2016–17 Budget to $118.6 billion. This suggests that since last year’s budget there has been slippage over the four years to 2018‑19 of $36.3 billion.

The bulk of this slippage is due to parameter and other variations (Table 8). The cumulative impact of parameter and other variations over the four years to 2018‑19 has been to worsen the fiscal outlook by around $28.2 billion (78 per cent of the overall slippage). The cumulative impact of policy changes over this period has been to worsen the fiscal outlook by around $8.1 billion (22 per cent of the overall slippage).

Table 8: The effect of policy and parameter variations on the underlying cash balance

 
Changes from 2015–16 Budget to
2015–16 MYEFO
$m
Changes from
2015–16 MYEF to
Budget 2016–17
$m
  Policy
decisions
Parameter &
other variations
Policy
decisions
Parameter &
other variations
2015-16 -2,516 231 -195 -2,352
2016-17 -2,427 -5,404 -3,070 -343
2017-18 302 -8,927 384 -3,484
2018-19 921 -8,246 -1,494 319
Total -3,720 -22,346 -4,375 -5,860

Source: Australian Government, Budget strategy and outlook: budget paper no. 1: 2016–17, 2016, Statement 3, Table 5, p. 3-24.

Focusing just on developments since MYEFO 2015‑16, the fiscal outlook over the four years to 2018‑19 has worsened by around $10.2 billion. Policy changes account for $4.4 billion (43 per cent) and parameter and other variations for $5.9 billion (57 per cent) of the overall slippage:

  • Since MYEFO 2015-16 policy decisions have increased payments by around $3.1 billion over the four years to 2018‑19 and decreased receipts by $1.2 billion over the same period.
  • Since MYEFO 2015‑16 parameter and other variations have reduced payments by around $8.5 billion, decreased receipts by $16.8 billion and decreased net Future Fund earnings by $2.4 billion. The net effect has been to increase the underlying cash deficit by $5.9 billion.

Statement 3 of Budget Paper No. 1 includes a detailed reconciliation of the changes to the projected underlying cash balance since the 2015‑16 Budget.

The Commonwealth’s balance sheet

The deterioration in Australia’s short-term fiscal outlook is reflected in the Commonwealth’s balance sheet (Table 9). In broad terms, larger projected cash deficits over the four years to 2018‑19 mean that the Australian Government faces a larger financing requirement and will need to borrow more.

Net financial worth

The primary indicator of fiscal sustainability articulated in the Government’s medium-term fiscal strategy is net financial worth (that is, total financial assets minus total financial liabilities). It provides a broad measure of the Government’s assets and liabilities as it includes both the assets of the Future Fund and the superannuation liability the Future Fund is intended to offset. One of the goals of the Government’s medium-term fiscal strategy is to strengthen the Government’s balance sheet by improving net financial worth over time.

The short-term outlook for the Commonwealth’s net financial worth has deteriorated over the past year. It was projected to be -$417.8 billion (-21.6 per cent of GDP) in 2018‑19 at the time of Budget 2015‑16. This declined to -$438.2 billion (-23 per cent of GDP) at the time of MYEFO 2015‑16; and declined further to -$454.3 billion (-24 per cent of GDP) in this year’s Budget.

Table 9: Net financial worth, net debt and net interest payments ($b and %)

  2014-15 2015–16 2016–17 2017–18 2018–19 2019–20
  Net financial worth
Budget 2015–16 ($b) -350.1 -383.5 -406.0 -415.2 -417.8  
Budget 2015–16 (% GDP) -21.8 -23.2 -23.3 -22.6 -21.6  
MYEFO 2015–16 ($b) -421.1 -377.5 -409.7 -427.3 -438.2  
MYEFO 2015–16 (% GDP) -26.2 -22.9 -23.7 -23.6 -23.0  
Budget 2016–17 ($b) -421.1 -387.9 -427.2 -445.2 -454.3 -455.8
Budget 2016–17 (% GDP) -26.2 -23.5 -24.8 -24.6 -24.0 -22.9
  Net debt
Budget 2015–16 ($b) 250.2 285.8 313.4 323.7 325.4  
Budget 2015–16 (% GDP) 15.6 17.3 18.0 17.6 16.8  
MYEFO 2015–16 ($b) 238.7 278.8 316.5 336.4 346.6  
MYEFO 2015–16 (% GDP) 14.8 16.9 18.3 18.5 18.2  
Budget 2016–17 ($b) 238.7 285.7 326.0 346.8 356.4 355.1
Budget 2016–17 (% GDP) 14.8 17.3 18.9 19.2 18.8 17.8
  Net interest payments
Budget 2015–16 ($b) 10.9 11.6 11.9 12.3 13.0  
Budget 2015–16 (% GDP) 0.7 0.7 0.7 0.7 0.7  
MYEFO 2015–16 ($b) 10.9 11.2 11.9 12.7 13.5  
MYEFO 2015–16 (% GDP) 0.7 0.7 0.7 0.7 0.7  
Budget 2016–17 ($b) 10.9 12.0 12.6 13.4 14.2 14.2
Budget 2016–17 (% GDP) 0.7 0.7 0.7 0.7 0.8 0.7

Source: Australian Government, Budget strategy and outlook: budget paper no. 1 2015–16, 2015, Statement 10, Table 5, p. 10-14, Table 8, p. 10-19; S Morrison (Treasurer) and M Cormann (Minister for Finance), Mid-year economic and fiscal outlook 2015–16, 2015, Appendix D, Table D4, p. 297, Table D7, p. 301; Australian Government, Budget strategy and outlook: budget paper no. 1 2016–17, 2016, Statement 10, Table 4, p. 10-12, Table 7, p. 10-16.

General government sector net debt

Australian Government general government sector net debt is equal to 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:

  • At the time of last year’s budget net debt was forecast to be $325.4 billion by 2018‑19 (16.8 per cent of GDP). This projection was revised up in MYEFO 2015‑16 to $346.6 billion (18.2 per cent of GDP) and to $356.4 billion (18.8 per cent of GDP) in the Budget.
  • Net debt as a percentage of GDP was projected to peak in 2016‑17 in last year’s budget at 18 per cent of GDP. It is now projected to peak a year later in 2017‑18 at 19.2 per cent of GDP.
  • Statement 6 of Budget Paper No. 1 includes a reconciliation of changes in net debt from MYEFO 2015‑16 to the Budget.
General government sector net interest payments

Australian government general government sector net interest payments are equal to the difference between interest paid and interest receipts:

  • At the time of last year’s budget, net interest payments were projected to be $13.0 billion (0.7 per cent of GDP) in 2018‑19. This was revised up slightly in MYEFO 2015‑16 to $13.5 billion (0.7 per cent of GDP) and to $14.2 billion (0.8 per cent of GDP) in this year’s Budget.
  • The Budget assumes a weighted average cost of borrowing of around 2.5 per cent for future issuance of Treasury Bonds in the forward estimates period, compared with around 2.7 in MYEFO 2015‑16.


[1].          Reserve Bank of Australia (RBA), Statement on Monetary Policy, May 2016, p. 27.

[2].          Ibid.

[3].          Ibid., p. 31.

[4].          Australian Bureau of Statistics (ABS), Australian National Accounts: National Income, Expenditure and Product, December 2015, 2 March 2016.

[5].          RBA, Statistical Tables: Table G1 Consumer Price Inflation, RBA website.

[6].          ABS, Labour force, Australia, March 2016, 14 April 2016.

[7].          Australian National Accounts: National Income, Expenditure and Product, December 2015, op. cit.

[8].          RBA, Statistical Tables: Table I2 Commodity Prices, RBA website.

[9].          RBA, Index of commodity prices, 2 May 2016.

[11].       Australian Government, Budget Strategy and Outlook: Budget Paper No. 1: 2016‑17, 2016, p. 2-19.

[12].       Budget Paper No. 1, op. cit., p. 2-19.

[13].       Statement on Monetary Policy, op. cit., p. 62.

[14].       Ibid., p.  3.

[15].       Measures of underlying inflation focus on persistent or generalised movements in prices by excluding price movements which reflect temporary, highly volatile or policy factors. In this way measures of underlying inflation gauge price movements that are predominantly due to market forces and have implications for future inflation.

[16].       G Stevens, Statement by Glenn Stevens, Governor: Monetary Policy Decision, media release, 3 May 2016.

[17].       Bank for International Settlements (BIS), 85th Annual report: 1 April 2014–31 March 2015, Basel, 28 June 2015, p. 65.

[18].       International Monetary Fund, World economic outlook: too slow for too long, April 2016, p. 4.

[19].       M Draghi, How central banks meet the challenge of low inflation, The Marjolin lecture at the SUERF conference, Frankfurt, 4 February 2016.

[20].       Statement on Monetary Policy, op. cit., p. 62.

[21].       Australian Government, Budget Strategy and Outlook: Budget Paper No. 1: 2015‑16, 2015, p. 2-5.

[22].       Budget Paper No. 1, op. cit., p. 2-6.

[23].       CommSec, ‘State of the States’, CommSec website, April 2016.

[24].       Commsec, ‘State of the States’, CommSec, April 2013.

[25].       How central banks meet the challenge of low inflation, op. cit.

[26].       BIS, ‘Uneasy calm gives way to turbulence’, BIS Quarterly Review, March 2016, p. 1.

[27].       L Pereira da Silva, Old and new challenges for 2016 and beyond: Strengthening confidence by re-anchoring long term expectations, Speech to the Lamfalussy Lecture Series: Professor Lamfalussy Commemorative Conference, Budapest, 1 February 2016.

[28].       International Monetary Fund, World economic outlook: too slow for too long, April 2016, p. 18.

[29].       Statement on Monetary Policy, op. cit., p. 5.

[30].       Ibid.

[31].       Statement on Monetary Policy, op. cit., p. 59.

[32].       Budget Paper No. 1, op. cit., p. 2-9.

[33].       Australian Government, Budget 2016–17: Overview, 3 May 2016, p. 2.

[34].       Budget Paper No. 1, op. cit., p. 2-27.

[35].       Ibid., p. 2-28.

[36].       Ibid., pp. 7-3 to 7-22.

[37].       Ibid., p. 7-13.

[38].       Ibid., p. 7-14.

[39].       Ibid., p. 3-7.

[40].       Australian Government, Budget Strategy and Outlook: Budget Paper No. 1: 2014–15, 2014, p. 3-7.

[41].       S Morrison (Treasurer) and M Cormann (Minister for Finance), Mid-year economic and fiscal outlook 2015–16, December 2015, p. 18.

[42].       Budget Strategy and Outlook: Budget Paper No. 1: 2015–16, op. cit., p. 3‑3.

[43].       Budget Paper No. 1, op. cit., p. 3-10.

[44].       Ibid.

[45].       Ibid. p. 3-11.

[46].       Ibid., p. 3-25.

[47].       Ibid.

[48].       Ibid.

[49].       Statement on Monetary Policy, op. cit., p. 60.

[50].       Budget Paper No. 1, op. cit., p. 3-12.

[51].       Ibid., p. 3‑12.

 

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