16th December 2019
Australians can be confident about their economic future. We have the first current account surplus in 40 years, the lowest welfare dependency in 30 years, the biggest tax cuts in 20 years, and the budget is in balance for the first time in 11 years.
More than 1.4 million new jobs have been created since we came to Government; we are investing record amounts in schools, hospitals, aged care and disability support; household disposable incomes have seen their fastest increase in a decade off the back of the tax cuts and Australia has maintained its AAA credit rating.
The Australian economy’s remarkable resilience comes at a time of significant global and domestic headwinds.
Our devastating drought has already taken a quarter of a percentage point off GDP growth and reduced farm output by around 18 per cent over the last two years.
Global trade tensions have weighed heavily on consumer and business sentiment with forecasts for global economic growth and that of our major trading partners downgraded in today’s MYEFO.
Despite these challenges, MYEFO demonstrates that the Australian economy continues to grow with the Budget returning to surplus for the first time in 12 years.
There are three key takeout’s from today’s MYEFO.
First, the Government is living within its means, paying down Labor’s debt without increasing taxes.
Surpluses over the forward estimates total $23.5 billion and build to 1 per cent of GDP by 2026-27. With a forecast surplus of $5 billion in 2019-20, it is a $53.5 billion turnaround on the deficit we inherited upon coming to Government.
With gross debt having peaked in 2017-18 and net debt falling over the forward estimates, the nation’s interest bill on its debt burden falls from $19 billion last year to $14.5 billion in 2022-23.
Over the forward estimates in cumulative terms, this amounts to $13.5 billion that no longer needs to be spent on interest payments.
This stronger fiscal position is achieved with a tax to GDP ratio of 23.1 per cent this year that falls to 22.9 per cent at the end of the forwards.
Real growth in spending is 1.3 per cent per annum on average over the forwards, reflecting more Australians in work.
Spending as a proportion of GDP is at 24.5 per cent this year, below the 30 year average.
Our pathway to surplus has been steady and consistent, not relying upon overly optimistic commodity prices.
In MYEFO, we have kept the iron ore price assumption at US$55 per tonne by the end of the June quarter 2020, despite the current spot price being around US$85 a tonne.
Metallurgical and thermal coal price assumptions have both been reduced to US$134 and US$64 respectively, reflecting recent price movements.
This is impacting on nominal GDP growth which is forecast to be 3¼ per cent in 2019-20 and 2¼ per cent in 2020-21. This impacts on revenue forecasts which have been revised in MYEFO.
Second, MYEFO demonstrates that the Australian economy continues to grow. This year growth is forecast to be 2¼ per cent, lifting to 2¾ per cent next year.
Next year the Australian economy is expected to grow faster than any nation in the G7, and faster than the OECD average of 1.6 per cent.
Growth is being driven by a combination of factors including public final demand, household consumption, business investment and exports.
Public final demand which covers consumption and investment, including NDIS and transport infrastructure spending, is forecast to grow to 4¾ per cent this year which is up from budget, and mining investment is forecast to grow for the first time in seven years.
Household consumption, while lower than budget, is still forecast to grow by 1¾ per cent in 2019-20. With the recent national accounts showing household disposable income had its fastest rate of growth in a decade off the back of the Government’s tax cuts.
Export growth remains strong, supported by new free trade agreements and increased demand for our services exports which is forecast to increase 5½ per cent in 2019-20.
The labour market remains strong with employment growth forecast to be 1¾ per cent in 2019-20 and the participation rate remaining around historic highs of 66 per cent, upgraded from 65½ per cent at budget.
While wage growth and inflation have both been revised downwards, wages are forecast to continue to increase at 2½ per cent this year and next, which is above the forecast for the rate of inflation.
Third, with the Government’s economic plan delivering continued economic growth and a stronger budget position, MYEFO demonstrates we have the capacity and flexibility to invest more in the areas where we need it most.
MYEFO confirms that since the budget, we have made policy decisions to provide an additional $8.3 billion over forward estimates, including $2.4 billion in 2019-20.
This includes $4.2 billion in accelerated infrastructure projects over the forward estimates, which is part of our $100 billion 10 year infrastructure pipeline.
There is $2.9 billion of work brought forward on projects including the north east link, north south corridor, Tonkin, Bass, Bruce and Princes highways, and $1.3 billion in new projects.
There is additional funding for drought support including further investments in the Drought Communities Support Initiative with $300 million to support eligible councils to complete capital works, $138 million for roads to recovery for 128 local government areas impacted by drought, and additional funding for income support, financial counselling and mental health services.
The budget update also includes $624 million in additional funding for aged care including half a billion dollars for 10,000 home care packages, $25 million to improve medication management to reduce the use of chemical constraints in aged care, and $10 million for dementia training for aged care workers.
As we go forward, we will continue to maintain a disciplined and responsible approach to managing the nation’s finances.
With the budget back under control, our fiscal strategy now focuses on paying down Labor’s debt with sustainable surpluses over the cycle, keeping taxes low and under our self-imposed cap and targeting spending to boost productivity, workforce participation and guaranteeing the essential services that people need and rely upon.
In our 29th consecutive year of economic growth, Australians can rightly be confident about their economic future.