Budget Review 2021–22 Index
Phillip Hawkins
The effect of the ongoing COVID-19 pandemic on the
international and domestic economy has had a substantial impact on the
Commonwealth Government’s fiscal position, with the Budget projected to remain
in deficit for at least the next decade and government debt increasing, albeit
from relatively low starting points.
Despite this, however, forecasts of the fiscal position
released in the 2021–22 Budget have improved since the 2020–21 Budget released
in October last year and the 2020–21 Mid-Year Economic and Fiscal Outlook
(MYEFO) statement released in December 2020. As the Macroeconomic
Overview shows, the forecasts for the domestic economy have improved, which
has a flow-on to a better fiscal position in 2020-21 and 2021-22, primarily
through higher-than-expected government tax receipts. The fiscal position is
slightly worse in the last few years of the forward estimates, however, due to
a number of significant Government policy announcements.
This brief summarises the key fiscal data and discusses the
Government’s medium-term fiscal strategy. It provides historical time-series
data over a period of 20 to 30 years to place the current fiscal position into
historical context. Longer term historical data and charts are available from
the Historical
Australian Government Data spreadsheet.
Underlying cash balance
The surplus or deficit is measured by the underlying cash
balance (UCB), 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 Mid-year
Economic and Fiscal Outlook 2019–20 released in December 2019 (the last
fiscal update before the start of the COVID-19 pandemic) estimated that the
Budget would be in surplus in 2019–20 and over each year of the forward estimates.
As a result of COVID-19, the Budget recorded a deficit of $85.3 billion in
2019–20 and is anticipated to remain in deficit across each year of the forward
estimates (see Figure 1).
Figure 1: underlying cash balance
2004–05 to 2024–25
Sources: J Frydenberg
(Treasurer) and M Cormann (Minister for Finance), Mid–year economic and fiscal outlook 2019–20; Australian Government, Budget strategy and outlook: budget paper no. 1:
2020–21, statement 11; J
Frydenberg (Treasurer) and S Birmingham (Minister for Finance), Mid-year
economic and fiscal outlook 2020–21; Australian Government, Budget strategy and outlook: budget paper no.1: 2021–22, statement 11.
The Budget deficit in 2020–21, however, has been revised
since the 2020–21 MYEFO, from $197.7 billion to $161.0 billion.
Across the forward estimates (from 2020–21), cumulative deficits over the
period from 2020-21 to 2024-25 are now anticipated to be $8.4 billion less
than previously forecast ($503.3 billion compared to $511.7 billion).
Over last three years of the forward estimates period, the forecast deficit is
expected to be slightly larger than previously estimated in the 2020-21 MYEFO.
Figure 2 shows the change in the UCB because of both
parameter variations and policy decisions. Parameter variations occur
because of changes in the economy, or in the composition and size of the
population and the consequential flow-on effects to revenue and demand for
government payments and services. Policy decisions are explicit policy
decisions taken by the Government, as announced in Budget
Paper 2: Budget Measures.
Figure 2: parameter variations and
policy decisions since the 2020-21 MYEFO
Source: Australian Government, Budget strategy and outlook: budget paper no.1: 2021–22, statement 3.
- Since the release of the 2020–21 MYEFO, Treasury’s forecasts for
the domestic economy have improved. As a result, parameter variations are
expected to improve the underlying cash balance by $40.1 billion in
2020–21, $20.0 billion in 2021–22 and $104.2 billion across the five
years to 2024–25.
- This
is primarily being driven by better-than-previously-anticipated government
receipts, which are forecast to be $82.5 billion higher across the five
years to 2024–25 because of relatively improved economic forecasts.
- These parameter variations are offset by the Government’s policy
decisions. These policy decisions are expected to reduce the UCB by
$3.3 billion in 2020–21, $18.2 billion in 2021–22 and
$95.8 billion across the five years to 2024–25.
- The
Government has announced a number of major policy decisions. These include
increases in payments that are anticipated to cost the Budget $68.3 billion
over the period to 2024–25, and reductions in receipts (due to tax cuts and
concessions) that are anticipated to reduce the UCB by $27.6 billion over
the same period. On the payments side of the Budget, this includes the impact
of $9.5 billion in spending decisions the Government has included in the
Budget that it has not yet announced (‘decisions taken but not yet announced).
- Many
of these policy decisions, unlike some of the temporary economic assistance
measures announced to address the impact of the pandemic (including JobKeeper),
will have ongoing impacts beyond the forward estimates.
The net impact of policy and parameter and other variations
is that the deficit is forecast to be $36.8 billion less in 2020–21 than
previously forecast and $1.8 billion less in 2021–22. However, the deficit
is anticipated to be larger in the last three years of the forward estimates as
policy decisions more than offset the improvement in the UCB due to parameter
variations.
Payments and receipts
Figure 3 shows how government forecasts of payments
have changed since the start of the COVID-19 pandemic. As a result of the
pandemic the Government announced several temporary economic support measures
that, along with the economic impacts of the crisis, led to substantially
higher payments in 2019–20 and 2020–21.
Figure 3 also shows how forecasts of payments have
changed since the 2020–21 Budget and 2020–21 MYEFO. Payments are anticipated to
be slightly lower than previously expected in 2020–21, but higher across the
forward estimates period. While much of the major expenditure included in the
2020–21 Budget comprised temporary economic support measures, many of the
significant measures announced in the 2021-22 Budget involve increased
expenditure that has an ongoing impact. These include major announcements in
aged care, mental health, domestic violence, and childcare.
- Payments are expected to be $660.8 billion in 2020–21 (32.1%
of GDP—a peak as a percentage of GDP). This compares to the previous MYEFO
forecast of $670.9 billion (33.4% of GDP).
-
However, payments are expected to be higher in later years than
previously forecast at MYEFO; for example, payments are now forecast to be
$612.4 billion (26.9% of GDP) in 2023–24, slightly higher than forecast at
MYEFO when they were forecast to be $592.2 billion (26.8% of GDP). This is
primarily due to a number of significant spending announcements in the 2021–22
Budget that have ongoing impacts. Total payments in 2024-25 are forecast to be
$628.9 billion (26.2% of GDP).
Figure 3: Australian Government
payments 2004–05 to 2024–25
Sources: J Frydenberg
(Treasurer) and M Cormann (Minister for Finance), Mid–year economic and fiscal outlook 2019–20; Australian Government, Budget strategy and outlook: budget paper no. 1:
2020–21, statement 11; J
Frydenberg (Treasurer) and S Birmingham (Minister for Finance), Mid-year economic and fiscal outlook 2020–21; Australian Government, Budget strategy and outlook: budget paper no.1: 2021–22, statement 11.
Figure 4 also shows how the
COVID-19 pandemic has affected Australian Government receipts, which fell
significantly in 2019–20 following the start of the pandemic. However, the fall
across the forward estimates forecast in the 2021–22 Budget is not as
pronounced as previously anticipated in the 2020-21 MYEFO, particularly in 2020–21
and 2021–22. This upward revision in receipts forecasts is primarily due to an
improvement in the underlying economic forecasts.
Figure 4: Australian Government
receipts 2004–05 to 2024–25
Sources: J Frydenberg
(Treasurer) and M Cormann (Minister for Finance), Mid–year economic and fiscal outlook 2019–20; Australian Government, Budget strategy and outlook: budget paper no. 1:
2020–21, statement 11; J
Frydenberg (Treasurer) and S Birmingham (Minister for Finance), Mid-year economic and fiscal outlook 2020–21; Australian Government, Budget strategy and outlook: budget paper no.1: 2021–22, statement 11.
- Total receipts have been revised upwards by $26.7 billion to
$499.8 billion (24.3% of GDP) in 2020–21 and by $23.6 billion to
$482.0 billion in 2021–22 (22.6% of GDP). Across the four years to 2023–24
total receipts have been revised upwards by $63.8 billion.
-
Forecasts for income and other withholding tax receipts, which is
primarily personal income tax, have been revised up since MYEFO, by
$10.0 billion in 2020–21, by $9.1 billion in 2021–22 and by
$32.5 billion across the forward estimates. According to Budget
Paper 1: Budget strategy and outlook, this largely reflects stronger
employment forecasts.
- Company tax forecasts have been revised up since MYEFO, by
$5.4 billion in 2020–21, by $9 billion in 2021–22 and by
$4.8 billion over the four years. This partly reflects
higher-than-expected iron-ore prices, which have improved the profitability of
Australia’s mining sector. This effect is expected to taper off over the
forward estimates period. Company tax receipts are expected to be around
$10.6 billion lower in 2023–24, but this reflects a policy decision to
extend a measure to allow immediate expensing of depreciable assets for a further
year.
- Goods and services tax receipts have also been revised upwards
since MYEFO—by $6.6 billion in
2020–21, by $5.3 billion in 2021–22 and by $20.9 billion across the
four years to 2023–24—as a result of stronger-than-expected consumption
forecasts and increases in dwelling investment.
- Superannuation tax receipts have been revised upwards since
MYEFO, by $2.9 billion in 2020–21, by $2.1 billion in 2021–22 and by
$7.8 billion across the four years to 2023–24.
Table 1 summarises the major variances in government
receipts since the release of the 2019–20 MYEFO.
Table 1: major variations in taxation
receipts estimates (2020–21 MYEFO to 2021–22 Budget)
Receipts ($m)
|
Fiscal
update
|
2020–21
|
2021–22
|
2022–23
|
2023–24
|
2024–25
|
Total receipts
|
2020–21
MYEFO
|
473,133
|
458,497
|
487,057
|
526,274
|
na
|
2021–22
Budget
|
499,831
|
482,053
|
494,000
|
532,855
|
571,969
|
Variation
|
26,698
|
23,556
|
6,943
|
6,581
|
na
|
Income and other withholding
taxes
|
2020–21
MYEFO
|
218,000
|
210,300
|
233,200
|
246,800
|
na
|
2021–22
Budget
|
228,000
|
219,400
|
236,600
|
256,800
|
261,800
|
Variation
|
10,000
|
9,100
|
3,400
|
10,000
|
na
|
Company tax
|
2020–21
MYEFO
|
87,900
|
73,300
|
69,400
|
91,600
|
na
|
2021–22
Budget
|
93,300
|
82,300
|
70,400
|
81,000
|
100,500
|
Variation
|
5,400
|
9,000
|
1,000
|
-10,600
|
|
Goods and services tax
|
2020–21
MYEFO
|
63,212
|
66,641
|
70,751
|
74,011
|
na
|
2021–22
Budget
|
69,782
|
71,941
|
75,231
|
78,570
|
82,400
|
Variation
|
6,570
|
5,300
|
4,480
|
4,559
|
na
|
Superannuation fund taxes
|
2020–21
MYEFO
|
8,760
|
13,160
|
13,560
|
13,460
|
na
|
2021–22
Budget
|
11,670
|
15,260
|
14,510
|
15,260
|
16,210
|
Variation
|
2,910
|
2,100
|
950
|
1,800
|
na
|
Note: ‘na’ means figures are not available from published
documents.
Sources: J Frydenberg
(Treasurer) and S Birmingham (Minister for Finance), Mid-year economic and
fiscal outlook 2020–21; Australian Government, Budget strategy and outlook: budget paper no.1: 2021–22, statement 5.
Net debt and interest payments
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.
Figure 5 shows Australian Government net debt and net
interest costs as a proportion of the economy. The Government has increased its
borrowing and will continue to do so over the forward estimates period.
However, net and gross debt are not expected to be as high as previously
forecast at the 2020–21 MYEFO.
- Net debt increased from $373.6 billion in 2018–19
(19.1% of GDP) to $491.2 billion in 2019–20 (24.7% of GDP) and is expected
to increase to $617.5 billion (30.0% of GDP) in 2020–21. Net debt is
expected to be $980.6 billion (40.9% of GDP) in 2024–25.
-
Despite increases in net debt, the net amount of interest paid on
these debts is expected to stay flat at around 0.7% of GDP across the forward
estimates period, reflecting continuing low interest rates on Australian
Government debt.
- Gross debt, measured as the total face value of Australian
Government securities on issue, increased from $542.0 billion (27.8% of
GDP) in 2018-19 to $684.3 billion (34.5% of GDP) in 2019–20. It is
expected to increase to $829.0 billion (40.2% of GDP) in 2020-21 and to
$1,199.0 billion in 2024–25 (50% of GDP).
Figure 5: net debt and net
interest payments
Source: Australian Government,
Budget strategy and outlook: budget paper no.1: 2021–22, statement 11.
Medium-term fiscal outlook
In the 2020–21 Budget the Government stepped away from a
medium-term strategy to achieve budget surpluses, on average, over the economic
cycle. It focused instead on growing the economy to reduce the unemployment
rate over the medium-term and to stabilising, then reducing, net and gross debt
over the medium-term. The Government reaffirmed this medium-term strategy in
the 2021–22 Budget.
- Medium-term projections now outline ongoing, but reducing, budget
deficits across the medium-term with a deficit of 1.3% of GDP projected for
2031–32.
- Payments are anticipated to stay relatively constant, at around
26.2% of GDP over the medium-term. Prior to 2019–20, the last time payments
were higher than 26.2% of GDP was 1986–87.
- Receipts are anticipated to grow slightly as a proportion of GDP
over the medium-term, from 23.9% of GDP in 2024–25 to closer to 25% of GDP.
- Net debt is projected to peak at 40.9% of GDP at 30 June 2025,
lower than the peak of 43% of GDP at 30 June 2024 predicted at MYEFO.
Net debt is expected to fall to 37% of GDP by 2031–32.