Budget forecast to return to surplus in 2012-13 on back of strong economic growth, constrained spending and increased tax receipts flowing from new resources tax
May 12, 2010
Federal Treasurer Wayne Swan says the Budget will return to surplus in 2012-13, three years ahead of schedule, on the back of strong economic growth, constrained spending and increased tax receipts flowing from the new resources tax.
The forecast deficit of $40.8 billion for 2010-11 (2.9 per cent of GDP) is almost $6 billion less than the forecast at the Mid-Year Economic and Fiscal Outlook (MYEFO), and more than $16 billion less than expected one year ago, he revealed in last night’s Budget speech.
Net debt is now expected to peak lower and earlier at 6.1 percent of GDP – half the level expected one year ago, and less than one-tenth of the average across the major advanced economies.
Swan says the Government will maintain a 2 percent cap on real spending growth, on average, until the surplus reaches 1 percent of GDP.
“All new spending has been offset over the forward estimates, and real payments growth has been held to below 2 per cent, meeting our strict fiscal rules,” Swan says.
The return to surplus in 2012-13 is predicated on the Australian economy continuing to grow strongly, as private sector activity continues to recover from the downturn.
Demand for Australian exports is forecast to push the terms of trade to their highest level in 60 years, boosting national income and expenditure.
Additionally, cuts to the company tax rate and accelerated asset write-offs for small business – funded through the Resource Super Profits Tax (RSPT) – is projected to boost investment by 2.1 percent, lift real wages by around 1.1 percent in the long run, and put an extra $450 a year into the pockets of workers on average earnings.
As a result, the Budget estimates GDP will grow by around 2 percent in 2009-10, compared with a forecast contraction of 0.5 percent forecast a year ago, before rebounding powerfully to expand by 3.25 percent in 2010-11 and 4 percent in 2011-12.
Unemployment, already the second-lowest compared with major advanced economies, is predicted to fall further, to 4.75 percent by mid-2012.
Swan adds that as private sector activity builds momentum, fiscal stimulus is being withdrawn as planned.
The withdrawal of stimulus is expected to subtract 1 percentage point from growth in 2010 and a further 0.75 of a percentage point in 2011.
“While recent events in Greece are a reminder that global economic risks remain, the strength of our economy and our robust fiscal position form a solid buffer against these global uncertainties,” he says.