By a staff reporter
The Gillard government has upheld its promise to return the federal budget to surplus in fiscal 2013, in the largest budget turnaround in over 50 years, despite a larger than expected deficit forecast for the current year.
The government expects the deficit for the current year to reach $44.4 billion, or 3 per cent of gross domestic product (GDP), up from $37.1 billion forecast in November’s mid-year outlook.
The deficit is expected to swing to a thin surplus of $1.5 billion in fiscal 2013, or 0.1 per cent of GDP – in line with its previous forecast – before growing to a surplus of $2 billion in fiscal 2014.
Surpluses of $5.3 billion and $7.5 billion are expected for fiscal years 2015 and 2016.
But the impact of global economic uncertainty on asset prices, lower than expected company tax collections in 2010-11 and consumer caution have taken a toll, wiping $28 billion off tax receipts over the four years from 2011-12.
Tax as a proportion of GDP in the 2012 fiscal year and previous two years is at its lowest measure since 1993-94. They are not expected to return to pre-crisis levels for some years, Treasurer Wayne Swan told Parliament in his budget speech.
This resulted in an even deeper challenge in returning the budget to surplus than forecast in November.
"This budget delivers a surplus this coming year, on time, as promised, and surpluses each year after that, strengthening over time,” Mr Swan said.
Growth forecast stronger than RBA estimate
On economic growth, the government has lowered its forecast for 2012, but maintained its outlook for the following year.
Real GDP is expected to grow at a rate of 3 per cent in fiscal 2012, below the mid-year target of 3.25 per cent.
However, growth is expected to accelerate to 3.25 per cent in 2013, in line with its mid-year outlook and stronger than the Reserve Bank’s forecast of 2.5-3 per cent for the year, in its latest Statement on Monetary Policy.
The bank had forecast real GDP growth of 3 per cent for the current year, in line with government’s current expectations.
Nominal GDP is expected to grow by 5.5 per cent this year, then dip to 5 per cent next year before rising to 5.25 per cent for each of the following three years.
Meanwhile, inflation is expected to be significantly lower this year than previously forecast, and employment slightly higher.
Surprisingly, the government has revised down its growth forecast for the consumer price index to 1.25 per cent – well below the Reserve Bank’s target rate of 2-3 per cent – from 2.25 per cent in November.
However, CPI growth is expected to jump back to 3.25 per cent in fiscal 2013, before settling to 2.5 per cent in 2014.
The unemployment rate has been revised down for 2012, to a forecast of 5.25 per cent, but held unchanged at 5.5 per cent for the following year.
By 2014, unemployment is expected to remain steady at 5.5 per cent.
Growth in Australia’s terms of trade will be stronger than expected this year but weaker than expected the following year, with the government raising its forecast to 3.25 per cent for fiscal 2012, from 1.75 per cent in November.
The predicted fall in terms of trade for fiscal 2013 has been revised down to 5.75 per cent, from 5.25 per cent.
Export growth, which is tipped to reach 4 per cent this financial year and 4.5 per cent next year, will be lower than previously expected.
Imports are expected to jump by 12.5 per cent this year and 7.5 per cent next year.
Wage growth for 2012 is expected to be slightly weaker than forecast, with the growth rate falling to 3.5 per cent, from 3.75 per cent in the mid-year outlook.
The wage price index is expected to grow at 3.75 per cent in fiscal 2013, remaining steady at the same rate the following year.
The government has pledged to limit real spending growth to an average growth of 2 per year over the budget years.
Australia’s 2012-13 GDP growth is predicted at 3.25 per cent, well above the 2.25 per cent forecast for the United States and 0.75 per cent expected for the euro area.
"The global outlook remains weak and uncertain, and substantial downside risks remain,” Mr Swan said.
"It’s likely that the uncertainty and associated volatility in financial markets will continue for some time.”