By a staff reporter
Treasurer Wayne Swan has outlined a sharply wider deficit for fiscal 2014 than flagged in the mid-year economic and fiscal outlook (MYEFO), and a path back to a narrow surplus in 2016, as he described a period of great transition for the national economy in coming years.
In his sixth federal budget, Mr Swan said the nation’s largest resource investment boom was shifting to a boom in production and exports, and as a result the economy was transitioning towards broader sources of economic growth.
The government expects the deficit for the current year to reach $19.4 billion, or 1.3 per cent of gross domestic product (GDP), a sharp deterioration from the $1.1 billion surplus forecast in November’s mid-year outlook.
The deficit is forecast to narrow slightly in fiscal 2014 to $18 billion, or 1.1 per cent of GDP, well below the mid-year forecast of a $2.2 billion surplus.
The deficit will narrow further in fiscal 2015 to $10.9 billion, before swinging to a modest surplus of $800 million in fiscal 2016.
A surplus of $6.6 billion in projected in fiscal 2017.
Ongoing global volatility and the persistently high Australian dollar weighed on prices and company profits, Mr Swan said, triggering significant revenue writedowns.
Meanwhile, expected tax receipts for fiscal 2013 were written down by $17 billion from the previous budget‘s estimates.
Tax receipts across the next four years were $60 billion lower than MYEFO estimates.
The tax-to-GDP ratio, forecast at 22.2 per cent in fiscal 2014, was still 1.8 per cent lower than the average of the three years leading up the global financial crisis.
Mr Swan said $170 billion had been eroded from tax receipts in the years since the GFC.
“This year we face the second-largest revenue writedown since the Great Depression,” he said.
Growth forecasts largely in line with Reserve Bank forecasts
The government was notably conservative in its economic growth forecasts, which fell largely in line with the central bank’s estimates.
Real GDP is expected to grow three per cent in fiscal 2013, in line with the mid-year forecast, and slightly higher than the Reserve Bank of Australia’s (RBA) most recent forecast of 2.5 per cent.
Growth is expected to slow to 2.75 per cent in 2014, below the mid-year forecast of three per cent, but inside the RBA’s target inflation range of two to three per cent.
In fiscal 2015, GDP growth is predicted to return to three per cent, in line with the government’s previous forecast.
Meanwhile, nominal GDP growth over the forward estimates was revised down from the mid-year forecast as the sustained high Australian dollar and falling global commodity prices weighed on forecasts.
In fiscal 2013, nominal GDP growth of 3.25 per cent is expected, down from four per cent at the mid-year update.
Growth is then expected to lift to five per cent for the next years, against mid-year forecasts of 5.5 per cent and 5.25 for fiscal 2014 and fiscal 2015 respectively.
Meanwhile, inflation is expected to soften in the current year, while unemployment is tipped to rise.
The government’s forecast for the consumer price index (CPI) in fiscal 2013 is 2.25 per cent, a downward revision on the mid-year expectation of three per cent.
CPI growth is then expected to drop to 2.25 per cent in the next two years, in line with the mid-year forecast for fiscal 2014, before rising to 2.5 per cent in fiscal 2015.
The central bank’s most recent forecast for inflation in fiscal 2014 and 2015 centres on a target range of two to three per cent.
Meanwhile, the government expects the unemployment rate in fiscal 2013 to be 5.5 per cent, in line with its mid-year forecast.
In the subsequent two years, the unemployment rate is forecast to lift to 5.75 per cent, above the previous forecasts of 5.5 per cent and five per cent for fiscal 2014 and 2015 respectively.
The budget revised down a predicted fall in Australia’s terms of trade in the current year, to 7.5 per cent from eight per cent at the mid-year forecast.
The fall in terms of trade is set to narrow to 0.75 per cent in 2014, before widening again to 1.75 per cent in the following year.
Export growth is tipped to reach seven per cent this financial year and 6.5 per cent next year, higher than previously expected. At the mid-year update export growth was forecast at 4.5 per cent in fiscal 2013 and four per cent in fiscal 2014.
Meanwhile, imports are expected to grow at slower than previously expected, at a rate of five per cent and six per cent in the current and next year respectively.
Wages growth is expected to be 3.5 per cent in fiscal 2013 and fiscal 2014, in line with the mid-year forecasts.
Australia’s predicted real GDP growth in fiscal 2014 – 2.75 per cent – is well above the federal government’s forecast two per cent for the United States and an expected contraction of 0.5 per cent in the euro area.
Major export partner China is expected to see GDP growth at eight per cent in the same year.
Meanwhile, world GDP growth is forecast to be 3.25 per cent in fiscal 2013 and four per cent in each of the following two years.
Mr Swan said global market conditions had improved noticeably since December 2012, but warned there were still risks to the international stability.
“While acute crisis risks have been abated due to policy actions in the United States and Europe, the recovery is fragile and downside risks remain,” he said.
BUDGET 2013: Budget flags $19.4bn deficit this year
Treasury forecasts a return to a narrow surplus in fiscal 2016.
By a staff reporter