The budget deficit for 2011-12 was $43.7 billion, about $660 million less than expected when the budget was delivered in early May – and about $4 billion less than the deficit in 2010-11 and $11 billion lower than the deficit in 2009-10.
The 2011-12 budget outcome was the result of a further revenue shortfall plus lower outlays compared with the budget time estimate which resulted from slightly softer nominal economic growth or in other words, lower inflation. According to Treasurer Wayne Swan and Finance Minister Penny Wong, this trend of softer nominal growth has lingered into the 2012-13 fiscal year which is still hampering revenue growth. The recent national accounts confirmed that nominal GDP grew by 5.0 per cent in 2011-12 compared with a budget time estimate of 5.5 per cent.
The $660 million 'miss' on the budget bottom line compared to budget time is one of the smallest seen. It is less than 0.1 per cent of the total budget, which includes total spending and revenue of around $700 billion. There is no doubt that the government is hoping for a similarly small error with the current $1.5 billion surplus estimate for 2012-13.
As has happened in the past, the government has adjusted some of its spending patterns, which has impacted the 2011-12 outcome. Items such as the carbon price compensation, which was paid in May and June, made the 2011-12 deficit larger than it would otherwise be. This will also help to boost the surplus in 2012-13.
As a share of GDP, the deficit was 3.0 per cent in 2012-13, down from 3.4 per cent in 2010-11 and a GFC imposed peak of 4.2 per cent in 2009-10.
The level of net debt reached 10.0 per cent on GDP in 2011-12, 0.4 per cent of GDP higher than expected at budget time with the upward revision due to a valuation effect of the government bonds already on issue. On any international comparison, the government debt levels are very low, a point reflected in the triple-A credit rating from the major ratings agencies.
Fiscal policy is being implemented with a clear counter-cyclical bias; that is, moving to deficit in 2008-09 when the economy was threatened with recession, then slowly reducing the deficit as growth returns and, as we will likely see in the Mid-Year Economic and Fiscal Outlook in November, returning the budget to surplus as trend economic growth is locked in.
Stephen Koukoulas is an economist and financial market strategist who between October 2010 and July 2011 was economic policy advisor to Prime Minister Julia Gillard.