Phillip Hawkins and Liz Wakerly
Economic Policy Section
This brief provides an overview of the key fiscal and
economic numbers from the 2019–20 Budget.
Macroeconomic parameters
Domestic economy
Relative to the Mid-Year
Economic and Fiscal Outlook 2018–19 (MYEFO), Government forecasts for
key domestic macroeconomic parameters have largely been revised downwards (see
Table 1 below). The main changes include the following:
- Real Gross Domestic Product (GDP) for 2018–19 has been revised
down by 0.50 per cent to 2.25 per cent (and down by 0.75 per cent
since the 2018–19 Budget) and down by 0.25 per cent for 2019–20 and 2020–21. PwC
has noted:
In an enterprise as big as the Australian economy, that
missing ¼ per cent [real GDP] growth will be noticed.
- Nominal GDP has been revised upwards slightly for 2018–19 to 5
per cent, largely reflecting improved commodity prices rather than output
improvement. This translates to an
additional $4.6 billion in nominal GDP in 2018–19.
- Inflation, as measured by the Consumer Price Index (CPI), has
been revised down by 0.50 per cent to 1.50 per cent for 2018–19 (and
down by 0.75 per cent on the 2018–19 Budget) but is expected to recover to the
long run level of 2.50 per cent by 2020–21.
- Wage price growth has been revised downwards, again, for 2019–20
and 2020–21, but is expected to return to 3.5 per cent per annum by 2021–22 (note
that these forecasts still exceed the RBA
forecasts of 2.5 per cent for 2019–20 and 2.6 per cent for 2020–21.) This
is despite forecasts for employment growth, the unemployment rate and
participation remaining largely unchanged.
- The terms of trade have been revised upwards for 2018–19 and 2019–20,
reflecting stronger-than-expected commodity prices (an increase in the terms of
trade of 9.25 per cent since the 2018–19 Budget forecast for 2018–19).[1]
Table 1: growth in key economic
parameters at 2019–20 Budget relative to 2018–19 MYEFO
| |
Outcome |
Forecasts |
Projections |
|
2017–18 |
2018–19 |
2019–20 |
2020–21 |
2021–22 |
2022–23 |
| Real GDP |
2.80 |
2.25 |
2.75 |
2.75 |
3.00 |
3.00 |
| Change since MYEFO |
0 |
–0.50 |
–0.25 |
–0.25 |
0 |
n/a |
| Nominal GDP |
4.70 |
5.00 |
3.25 |
3.75 |
4.50 |
4.50 |
| Change since MYEFO |
0 |
0.25 |
–0.25 |
–0.50 |
0.25 |
n/a |
| Consumer Price Index |
2.10 |
1.50 |
2.25 |
2.50 |
2.50 |
2.50 |
| Change since MYEFO |
0 |
–0.50 |
0 |
0 |
0 |
n/a |
| Wage Price Index |
2.10 |
2.50 |
2.75 |
3.25 |
3.50 |
3.50 |
| Change since MYEFO |
0 |
0 |
–0.25 |
–0.25 |
0 |
n/a |
| Employment |
2.70 |
2 |
1.75 |
1.75 |
1.50 |
1.50 |
| Change since MYEFO |
0 |
0.25 |
0 |
0.25 |
0 |
n/a |
| Unemployment rate |
5.40 |
5.00 |
5.00 |
5.00 |
5 |
5.00 |
| Change since MYEFO |
0 |
0 |
0 |
0 |
0 |
n/a |
| Terms of trade |
1.90 |
4.00 |
–5.25 |
–4.75 |
|
|
| Change since MYEFO |
0 |
2.75 |
0.75 |
n/a |
|
|
Sources: Australian Government, Mid-year
economic and fiscal outlook 2018–19, pp. 4, 19; Australian Government, Budget strategy
and outlook: budget paper no. 1: 2019–20, Statement 1, p. 1-8 and
Statement 2, p. 2-5.
According to the
Australian Institute of Company Directors:
Given the soft start to the current year, the ongoing
adjustment in housing markets, and the still sluggish pace of wage growth,
risks to these forecasts for the Australian economy are skewed to the downside,
with the budget papers highlighting the risks posed by a more subdued outlook
for household income and high levels of household debt.
Budget
sensitivity analysis around nominal GDP growth forecasts suggests that
there is a 70 per cent chance that average annualised nominal GDP growth in the
two years to 2019–20 will lie in the range of 3.0 to 5.5 per cent.[2]
Although household
consumption growth is expected to rise over the forecast period ‘supported
by continued growth in employment, a pick-up in wage growth, historically low
interest rates and the Government’s personal income tax relief measures’, the
Budget acknowledges that the outlook for the housing market poses a downside
risk for consumption. Lower wage growth will negatively affect household
consumption and nominal GDP outcomes, pushing growth to the lower end of the
sensitivity range.
Scenario analysis explores the impact of a level of
consumption growth 1.00 per cent lower in 2019–20 than in the current Budget
forecast (which assumes growth of 2.75 per cent). After two years, real and
nominal GDP are forecast to be 0.5 per cent lower, total receipts to be down $3.0 billion
and the underlying cash balance (UCB) to deteriorate by $2.8 billion—equivalent
to 39 per cent of the forecast 2019–20 UCB surplus. If inflation (as measured
by the CPI) were 0.5 per cent lower in each of 2019–20 and 2020–21, this would result in
a similar deterioration in the UCB through its impact on nominal GDP and tax
receipts.
International
Relative to the 2018–19 MYEFO, Government forecasts for
world GDP growth have been revised down by 0.05 per cent to 3.70 per cent for
2018 and by 0.25 per cent to 3.50 per cent for both 2019 and 2020. These
numbers are now closer to IMF
World Economic Outlook forecasts released in January 2019, which pointed to
weakening global growth. Budget Paper
No. 1 states:
Internationally, while some risks have lessened somewhat
since the MYEFO, downside risks remain around trade tensions, emerging market
debt vulnerabilities and geopolitical issues.
...
There is a high degree of uncertainty around the global
growth outlook amid a range of economic and geopolitical risks that continue to
evolve. This uncertainty appears to be weighing on measures of global
confidence, which have been falling in recent months.
Growth of major trading partners has been revised down
slightly for 2018–19, possibly reflecting slower than expected growth in the
Euro area and India, but the Government
considers:
The Australian economy is expected to continue to benefit
from growth in major trading partners, with economies in the Asian region
growing relatively strongly.
Fiscal numbers
The surplus or deficit is measured by the underlying cash
balance, which is a measure of the difference between the receipts
of the Australian Government (including tax and non-tax receipts) and the
payments the Government makes on a cash accounting basis. The fiscal balance
is broadly the equivalent measure on an accrual basis, measuring the difference
between revenues and expenses (including net capital expenditures).
Figure 1 shows that the UCB is forecast to be in surplus in
2019–20, which if delivered, would be the first budget surplus since 2007–08.
The surplus is forecast to be $7.1 billion (0.4 per cent of GDP) in 2019–20,
growing to $17.8 billion (0.8 per cent of GDP) in 2021–22, before declining
slightly to $9.2 billion (0.4 per cent of GDP) by 2022–23.
Figure 1: underlying cash balance
Source: Australian Government, Australian
Government, Budget strategy and outlook: budget paper no. 1:
2019–20, statement 10, p. 10-5 and
10-6.
Figure 2 shows that the forecast
return to surplus is largely predicated on growth in total receipts back to
around 25 per cent, their level prior to the global financial crisis of 2007–08
(but above their 30 year average of 24 per cent).
Receipts were anticipated to be around 24.2 per cent
of GDP in 2017–18, but are expected to rise to 25.2 per cent in 2019–20
and to settle at or slightly above this level across the forward estimates. The
majority of total receipts are made up of tax receipts which were 22.6 per cent
of GDP in 2017–18, and are expected to grow to 23.7 per cent of GDP by 2021–22,
before falling to 23.3 per cent of GDP in
2022–23.
Payments are expected to decline from 24.9 per cent
of GDP in 2018–19 to 24.6 per cent in 2019–20, before settling around 24.5 per
cent of GDP across the forward estimates.
Figure 2: receipts
and payments
Source: Australian Government, Australian
Government, Budget strategy and outlook: budget paper no. 1:
2019–20, statement 10, p. 10-5 and
10-6.
Figure 3 shows that net debt is
forecast to peak at $361.0 billion (19.2 per cent of GDP) in 2018–19, before
declining to $326.1 billion (14.4 per cent of GDP) in 2022–23.
Reflecting the forecast downwards trajectory in Commonwealth
net debt, net interest payments are also expected to decline over the forward
estimates period from $14.1 billion (0.7 per cent of GDP) to $8.7 billion
(0.4 per cent of GDP) in 2022–23.
Figure 3: net debt and net interest
payments
Source: Australian Government, Budget strategy and outlook: budget paper no. 1:
2019–20, statement 10, p. 10-11
and 10-12.
Medium-term fiscal strategy
The Government has set out a medium-term strategy to achieve
budget surpluses, on average, over the economic cycle. The Government has
projected a UCB surplus of 2.0 per cent of GDP by 2029–30. It has also
committed to maintain tax receipts as a share of GDP below 23.9 per cent until
2029–30 (with total receipts projected to be around 25.5 per cent of GDP in
2029–30). In order to achieve a 2.0 per cent of GDP surplus while maintaining a
cap on tax receipts, payments as a share
of GDP are projected to fall from 24.5 per cent of GDP in 2022–23 to around
23.5 per cent of GDP by 2029–30.
The Government has also stated an intention
to eliminate the Commonwealth’s net debt by 2029–30.
However, it is important to note that there is considerable
uncertainty inherent in projections, both fiscal and economic, made over the
long-term.
Changes in the fiscal position since
MYEFO
There is expected to be improvement in the forecast fiscal
position in 2018–19 and 2019–20 relative to the 2018–19 MYEFO. However, the
fiscal position is expected to be slightly worse than previously projected at in
2020–21 and 2021–22.
Figure 4 shows the change in the UCB since the 2018–19
MYEFO. The UCB is expected to be higher in 2018–19 and 2019–20, but the
surpluses in 2020–21 and 2021–22 are expected to be smaller than previously
forecast.
Figure 4: policy and parameter
variations—impact on the underlying cash balance
Source: Australian Government, Budget strategy and outlook: budget paper no. 1:
2019–20,
statement 3, p. 3-19.
Parameter variations (changes
in payments and receipts as a result of underlying economic and demographic
conditions) are expected to improve the UCB across the forward estimates
(although by a relatively small amount in 2020–21 and 2021–22).
Better than expected commodity prices are expected to improve
economic growth and Australia’s terms of trade in the short term, driving tax
receipts, and particularly company tax receipts, higher in those years. However,
GDP is anticipated to be slightly weaker in 2020–21 and 2021–22 than previously
forecast.
GST receipts are anticipated to be lower in each year of the
forward estimates, reflecting downward revisions in consumption and new
dwelling investment. This has a corresponding effect on payments of GST
revenues to the states and territories. Payments are expected to be lower than
previously forecast in the 2018–19 MYEFO across each year of the forward
estimates.
New policy decisions taken by the Government in the
2019–20 Budget are expected to offset the effect of these parameter variations
on the UCB, reducing the UCB by $13.3 billion over the five years to
2022–23. These policy decisions are explored in more detail in the remainder of
the Budget Review, but include:
- the extension of the Government’s personal income tax plan
- new infrastructure spending and
- an increase in funding for medical services and funding for the Royal
Commission into violence abuse, neglect and exploitation of people with a
disability.
These are offset by additional revenue as a result of an
extension of the Australian Taxation Office tax avoidance taskforce for
multinationals and reduced expenses due to the Government’s better use of
income data matching to reduce over-payments of Government transfers.
The changes in fiscal aggregates since the 2018-19 MYEFO are
detailed further in tables 2, 3 and 4 below.
Table 2: underlying cash balance at
2019–20 Budget relative to 2018–19 MYEFO
| $ billion |
2018–19 |
2019–20 |
2020–21 |
2021–22 |
2022–23 |
| Receipts |
485.2 |
505.5 |
522.3 |
551.0 |
566.9 |
| as at MYEFO |
482.1 |
506.0 |
526.4 |
554.8 |
n/a |
| Change since MYEFO |
3.1 |
0.5 |
–4.1 |
–3.8 |
n/a |
| Payments |
482.7 |
493.3 |
511.3 |
533.2 |
557.7 |
| as at MYEFO |
483.4 |
497.4 |
513.9 |
535.8 |
n/a |
| Change since MYEFO |
–0.7 |
–4.1 |
–2.6 |
–2.6 |
n/a |
| Net future fund earnings |
3.9 |
4.6 |
n/a |
n/a |
n/a |
| as at MYEFO |
3.9 |
4.6 |
n/a |
n/a |
n/a |
| Change since MYEFO |
– |
– |
– |
– |
– |
| Underlying cash balance |
–4.2 |
7.1 |
11.0 |
17.8 |
9.2 |
| as at MYEFO |
–5.2 |
4.1 |
12.5 |
19.0 |
7.1 |
| Change since MYEFO |
1.0 |
3.0 |
–1.5 |
–1.2 |
2.1 |
| % of GDP |
2018–19 |
2019–20 |
2020–21 |
2021–22 |
2022–23 |
| Receipts |
25.0 |
25.2 |
25.1 |
25.4 |
25.0 |
| as at MYEFO |
24.9 |
25.3 |
25.2 |
25.5 |
n/a |
| Change since MYEFO |
1.0 |
–0.1 |
–0.1 |
–0.1 |
n/a |
| Payments |
24.9 |
24.6 |
24.6 |
24.5 |
24.5 |
| as at MYEFO |
24.9 |
24.8 |
24.6 |
24.6 |
n/a |
| Change since MYEFO |
– |
–0.2 |
– |
–0.1 |
n/a |
| Underlying cash balance |
–0.2 |
0.4 |
0.5 |
0.8 |
0.4 |
| as at MYEFO |
–0.3 |
0.2 |
0.6 |
0.9 |
n/a |
| Change since MYEFO |
0.1 |
0.2 |
–0.1 |
–0.1 |
n/a |
Sources: Australian Government, Budget strategy and outlook: budget paper no. 1:
2019–20, statement 10, pp. 10-5
and 10-6. Australian Government, Mid-year economic and fiscal outlook: 2018–19.pp.307-308
Table 3: fiscal balance at 2019–20
Budget relative to 2018–19 MYEFO
| $ billion |
2018–19 |
2019–20 |
2020–21 |
2021–22 |
2022–23 |
| Revenue |
495.8 |
513.8 |
534.3 |
564.7 |
580.5 |
| as at MYEFO |
493.3 |
514.5 |
538.2 |
568.3 |
n/a |
| Change since MYEFO |
2.5 |
–0.7 |
–3.9 |
–3.6 |
n/a |
| Expenditure |
487.3 |
500.9 |
516.1 |
535.9 |
559.9 |
| as at MYEFO |
488.4 |
504.4 |
517.8 |
538.6 |
n/a |
| Change since MYEFO |
–1.1 |
–3.5 |
–1.7 |
–2.7 |
n/a |
| Net Operating Balance |
8.5 |
12.9 |
18.2 |
28.8 |
20.6 |
| as at MYEFO |
4.9 |
10.1 |
20.4 |
29.8 |
n/a |
| Change since MYEFO |
3.6 |
2.8 |
–2.2 |
–1.0 |
n/a |
| Net Capital Investment |
6.5 |
4.7 |
7.7 |
9.7 |
10.8 |
| as at MYEFO |
6.8 |
5.8 |
8.1 |
9.8 |
n/a |
| Change since MYEFO |
–0.3 |
–1.1 |
–0.4 |
–0.1 |
n/a |
| Fiscal Balance |
2.0 |
8.1 |
10.4 |
19.1 |
9.8 |
| as at MYEFO |
–1.9 |
4.3 |
12.3 |
20.0 |
n/a |
| Change since MYEFO |
3.0 |
3.8 |
–1.9 |
–0.9 |
n/a |
| % of GDP |
2018–19 |
2019–20 |
2020–21 |
2021–22 |
2022–23 |
| Revenue |
25.6 |
25.6 |
25.7 |
26.0 |
25.6 |
| as at MYEFO |
25.5 |
25.7 |
25.8 |
26.1 |
n/a |
| Change since MYEFO |
0.1 |
–0.1 |
–0.1 |
–0.1 |
n/a |
| Expenditure |
25.1 |
25.0 |
24.8 |
24.7 |
24.6 |
| as at MYEFO |
25.2 |
25.2 |
24.8 |
24.7 |
n/a |
| Change since MYEFO |
–0.1 |
–0.2 |
– |
– |
n/a |
| Net Operating Balance |
0.4 |
0.6 |
0.9 |
1.3 |
0.9 |
| as at MYEFO |
0.3 |
0.5 |
1.0 |
1.4 |
n/a |
| Change since MYEFO |
0.1 |
0.1 |
–0.1 |
–0.1 |
n/a |
| Net Capital Investment |
0.3 |
0.2 |
0.4 |
0.4 |
0.5 |
| as at MYEFO |
0.4 |
0.3 |
0.4 |
0.4 |
n/a |
| Change since MYEFO |
–0.1 |
–0.1 |
– |
– |
n/a |
| Fiscal Balance |
0.1 |
0.4 |
0.5 |
0.9 |
0.4 |
| as at MYEFO |
–0.1 |
0.2 |
0.6 |
0.9 |
n/a |
| Change since MYEFO |
0.2 |
0.2 |
–0.1 |
– |
n/a |
Sources: Australian Government, Budget strategy and outlook: budget paper no. 1:
2019–20, statement 10, p. 10-15.
Australian Government, Mid-year economic and fiscal outlook: 2018–19, p. 317
Table 4: net debt and interest
payments at 2019–20 Budget relative to 2018–19 MYEFO
| $ Billion |
2018–19 |
2019–20 |
2020–21 |
2021–22 |
2022–23 |
| Net debt |
373.5 |
361.0 |
349.5 |
333.2 |
326.1 |
| as at MYEFO |
351.9 |
343.4 |
329.9 |
312.6 |
n/a |
| Change since MYEFO |
21.6 |
17.6 |
19.6 |
20.6 |
n/a |
| Net interest payments |
14.1 |
10.9 |
10.4 |
9.4 |
n/a |
| as at MYEFO |
14.0 |
11.5 |
11.3 |
10.4 |
n/a |
| Change since MYEFO |
0.1 |
–0.6 |
–0.9 |
–1.0 |
n/a |
| % of GDP |
2018–19 |
2019–20 |
2020–21 |
2021–22 |
2022–23 |
| Net debt |
19.2 |
18.0 |
16.8 |
15.3 |
14.4 |
| as at MYEFO |
18.2 |
17.1 |
15.8 |
14.3 |
n/a |
| Change since MYEFO |
1.0 |
0.9 |
1.0 |
1.0 |
n/a |
| Net interest payments |
0.7 |
0.5 |
0.5 |
0.4 |
0.4 |
| as at MYEFO |
0.7 |
0.6 |
0.5 |
0.5 |
n/a |
| Change since MYEFO |
– |
–0.1 |
– |
–0.1 |
n/a |
Source: Australian Government, Budget strategy and outlook: budget paper no. 1:
2019–20, statement 10, p. 10-11
and p. 10-11
Australian Government, Mid-year economic and fiscal outlook: 2018–19 pp.313-314
[1].
Statement 2 in Budget strategy
and outlook: budget paper no. 1: 2019-20 notes that the spot price of
iron ore is forecast to fall over the year to reach US$55 per tonne
free-on-board by the end of the March quarter 2020, but it does not identify
which price has been used in the Budget forecasts (p. 2-5).
[2].
Expanding this confidence limit to 90 per cent, the interval
expands from 2 per cent up to 6 per cent (Australian Government, Budget strategy
and outlook: budget paper no. 1: 2019-20, p. 7-7).
All online articles accessed April 2019
For copyright reasons some linked items are only available to members of Parliament.
© Commonwealth of Australia
Creative Commons
With the exception of the Commonwealth Coat of Arms, and to the extent that copyright subsists in a third party, this publication, its logo and front page design are licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Australia licence.
In essence, you are free to copy and communicate this work in its current form for all non-commercial purposes, as long as you attribute the work to the author and abide by the other licence terms. The work cannot be adapted or modified in any way. Content from this publication should be attributed in the following way: Author(s), Title of publication, Series Name and No, Publisher, Date.
To the extent that copyright subsists in third party quotes it remains with the original owner and permission may be required to reuse the material.
Inquiries regarding the licence and any use of the publication are welcome to webmanager@aph.gov.au.
This work has been prepared to support the work of the Australian Parliament using information available at the time of production. The views expressed do not reflect an official position of the Parliamentary Library, nor do they constitute professional legal opinion.
Any concerns or complaints should be directed to the Parliamentary Librarian. Parliamentary Library staff are available to discuss the contents of publications with Senators and Members and their staff. To access this service, clients may contact the author or the Library‘s Central Enquiry Point for referral.