The Treasurer, Wayne Swan, has released the Mid-Year Economic and Fiscal Outlook (MYEFO). It forecasts an increased budget deficit for 2011-12 and a small surplus in 2012-13.
Key points from MYEFO:
- 2011-12 budget deficit has increased to $37 billion from the budget forecast of $23 billion.
- The budget surplus for 2012-13 has been downgraded from $3.5 billion to $1.5 billion.
- Deteriorating economic conditions have cut $20 billion from revenue over the four-year forward estimates.
- Additional savings of $11.5 billion over four years have been announced.
- The baby bonus has been cut from $5400 to $5000.
- A 2.5% efficiency dividend, on top of an existing 1.5%, will produce savings across government departments of $1.5 billion.
- The federal and High Courts, and cultural institutions such as the Australian War Memorial have been been protected from cuts.
- There will be a crackdown on living away from home tax concessions, an increase in the eligibility age for the dependent spouse offset.
- Gross Domestic Product is now forecast to grow by 3.25%, down from 4.25%.
- Unemployment is expected to be 5.5% in 2011-12 and 2012-13, slightly up on budget forecasts.
The complete Mid-Year Economic and Fiscal Outlook appears at the end of this page.
- Listen to Swan and Wong release MYEFO (45m)
- Listen to Tony Abbott, Hockey and Robb speak on MYEFO (19m)
- Listen to Greens leader Senator Bob Brown (19m)
- Watch Channel 10 report (3m)
- Watch Channel 10 report (3m)
Text of statement from Treasurer Wayne Swan
Mid-Year Economic and Fiscal Outlook 2011?12
The 2011?12 Mid-Year Economic and Fiscal Outlook (MYEFO) released today forecasts solid economic growth, low debt and a return to surplus in 2012?13, despite a significant deterioration in global conditions in recent months cutting $20 billion from government revenues.
Global economic and financial conditions have deteriorated markedly in recent months, and the risks to global stability from the European sovereign debt crisis have intensified. Global growth prospects have been downgraded markedly in 2012, with the euro area expected to return to recession.
This has led to a weaker near-term economic and fiscal outlook for Australia since the Budget and substantial reductions to government revenues.
Real GDP is now expected to grow by 3¼ per cent in 2011-12 and 2012-13, downgrades of ¾ of a percentage point in 2011-12 and ½ of a percentage point in 2012-13.
Global developments have impacted on our share market, on trade outside of the mining sector and on confidence, with consumers becoming more cautious and businesses more reluctant to expand their workforce in the current uncertain global environment.
The recent instability in the global economy has had obvious consequences for revenue, with forecast tax receipts written down by more than $20 billion over the forward estimates. Lower tax receipts and higher payments – including advance payments to Queensland to support natural disaster recovery and significant assistance provided to households and businesses as part of the Clean Energy Future package – have led to a larger forecast deficit of $37.1 billion for 2011-12, returning to a small surplus of $1.5 billion in 2012-13.
The substantial downgrades to budget revenue flowing from heightened global turbulence have meant that the Government has had to find further savings in the budget. The European sovereign debt crisis has underscored the importance of maintaining fiscal discipline, which is important at a time when international financial markets are punishing those without discipline.
The Government has responded to the more challenging fiscal outlook in a measured and balanced way, delivering $11.5 billion in new savings. The combined effect of all policy decisions has improved the budget bottom-line by $6.8 billion over the forward estimates.
These savings steadily build over the forward estimates, and have been achieved through a combination of expenditure cuts including efficiencies sought within government, deferring some initiatives and implementing measures to improve the integrity and fairness of the taxation system. This mix of savings is appropriate given near-term uncertainty but more solid medium-term growth prospects, and will help strengthen our fiscal position over the medium term.
Australia will return the budget to surplus ahead of all major advanced economies, and government net debt peaks dramatically lower than in these countries at 8.9 per cent of GDP in 2011-12, before falling to 7.7 per cent of GDP in 2014-15. This is less than a tenth of the average net debt position of the major advanced economies expected in 2016 of 92.9 per cent of GDP.
The decisions taken in this MYEFO have not been easy, but are crucial to sustaining confidence in Australia’s public finances. As always, the Government has sought to protect low- and middle?income Australians, and the most vulnerable in our community, by striking the right balance in its budget decisions.
Strong and stable economic management, and our record of fiscal discipline, remains very important for Australian families across the country because it helps underpin confidence in our economy and supports Australian jobs at a time of heightened global uncertainty.
Text of statement from Treasurer Wayne Swan
Tax Measures in Mid-Year Economic and Fiscal Outlook
The Gillard Government today announced a number of measures as part of the Mid-Year Economic and Fiscal Outlook that build on ideas discussed at last month’s Tax Forum.
Fringe benefits tax (FBT) reform – Living-away-from-home allowance and benefits
The Government will introduce reforms to stop individuals from being able to exploit the tax exemption for living-away-from-home allowance and benefits.
This tax exemption is being increasingly misused by a narrow group of people, particularly highly-paid executives and foreign workers, at the expense of Australian taxpayers.
Rorting of this tax exemption was one of the issues raised at the Tax Forum, and has seen the total amount of tax-free living-away-from-home allowance reported by employers to the Australian Taxation Office increase from $162 million in 2004-05 to $740 million in 2010-11.
Under reforms announced today:
- access to the tax exemption for temporary residents will be limited to those who maintain a residence for their own use in Australia, which they are living away from for work purposes, such as ‘fly-in fly-out’ workers; and
- individuals will be required to substantiate their actual expenditure on accommodation and food beyond a statutory amount.
No permanent resident legitimately using this tax exemption for accommodation and food expenses will lose any entitlements.
These reforms will not affect other tax concessions, such as those that apply to travel and meal allowances, and remote area fringe benefits.
The reforms will apply from 1 July 2012. This start date will enable the Government to undertake an extensive consultation process on these reforms, so appropriate transitional arrangements can be put in place, including in regional Australia.
These changes will ensure that a level playing field exists between temporary residents and permanent residents, and that Australian taxpayers are not funding the unfair exploitation of concessions.
This reform progresses recommendation 9(c) of the Australia’s Future Tax System Review, and will provide savings of $683.3 million over the forward estimates.
Personal income tax reform – Dependent Spouse Tax Offset
The Government will further reduce outdated workforce participation disincentives for spouses without dependent children to take up paid employment by restricting the Dependent Spouse Tax Offset to those with spouses born before 1 July 1952. This reform will not affect people whose spouse is an invalid or a carer, or who receive the zone, overseas forces or overseas civilian tax offsets.
A taxpayer’s entitlement to the Dependent Spouse Tax Offset is reduced by $1 for every $4 of income which their dependent spouse earns above $282 per year. This means that the effective tax rate on the first $10,000 earned by a dependent spouse without children is around 25 per cent.
This measure builds on the reform announced in the 2011-12 Budget, which progressed recommendation 6(a) of the Australia’s Future Tax System Review, and will provide savings of $370.0 million over the forward estimates.
Responsible economic management
As part of its commitment to responsible economic management and returning the budget to surplus in 2012-13, the Government will defer four previously announced tax reforms by one year.
The start date of the standard deduction for work related expenses will be deferred until 1 July 2013.
The start date of the 50 per cent tax discount for interest income will be deferred until 1 July 2013, allowing more time for consultation with stakeholders on issues previously raised by industry.
The start date of the phase down in interest withholding tax for financial institutions will be deferred until 2014-15.
The start date of the new tax system for managed investment trusts will be deferred until 1 July 2013, allowing more time for consultation with stakeholders about how to best implement the elements of the package.
Together the deferral of these four measures will provide savings of $2.1 billion over the forward estimates.
The Government emphasised its commitment to fiscal discipline in the lead up to the Tax Forum, and remains committed to these important tax reforms.
Text of statement from Treasurer Wayne Swan
OECD Economic Outlook 90 – November 2011
The OECD Economic Outlook released overnight confirms that the fundamentals and outlook for the Australian economy remain solid, despite a major deterioration in Europe and a further slowing in the global economy in recent months.
The OECD states that Europe’s escalating crisis has resulted in a weaker growth outlook for OECD economies in the near term, and notes the euro area appears to be in a mild recession.
Against this backdrop, the growth forecast for OECD economies has been dramatically cut since May, revised down to 1.8 per cent in 2011 (from 2.3 per cent) and 1.6 per cent in 2012 (from 2.8 per cent).
In addition, the OECD warns of serious downside risks to this outlook, particularly the possibility of a sovereign default in the euro area causing contagion to spread to other markets. According to the OECD, “without preventive action, events could strengthen such pressures and plunge the euro area into a deep recession with large negative effects for the global economy.”
Despite the turbulence in the global economy, the OECD forecasts the Australian economy is still expected to grow substantially faster than its peers, with growth of 4.0 per cent in 2012 and 3.2 per cent in 2013.
The OECD expects Australia’s unemployment rate to tick up slightly to 5.3 per cent in 2012, although this is much lower than the 8 per cent unemployment rate expected for the OECD area as a whole, and reflects the strong economic management that saw Australia avoid recession during the global financial crisis and continue to create jobs through the recovery.
The OECD states that Australia’s “unemployment is expected to stay low and underlying inflation contained as the remaining slack in the economy gradually disappears.”
The OECD firmly endorses Australia’s budget strategy, noting that “stringent spending control, consistent with the Government’s plans, is still necessary to offset the revenue declines induced by the financial crisis and natural disasters.”
If global conditions deteriorate significantly, the OECD notes that Australia has room to move on monetary policy as well as the ability to provide fiscal support should it be necessary, due to our very low level of public debt.
In these uncertain times for the global economy, the Government recognises the importance of striking the right balance between budget discipline and continuing to support job creation and growth. Just as it would be wrong to abandon our determination to return to surplus in 2012-13, it would also be counterproductive to take an axe to the budget.
Strong and stable economic management, and our record of fiscal discipline, remain very important for Australian families across the country, helping underpin confidence and supporting Australian jobs.
