Budget 2016 cheat sheet: What you need to know
Updated
11 key questions you need answered to understand Treasurer Scott Morrison's first budget.
What's the bottom line?
The federal budget will continue in deficit over the next four years, with no major changes to the bottom line in Treasurer Scott Morrison and Prime Minister Malcolm Turnbull's first budget.
The coming year's deficit is expected to be $37 billion.
"This budget is a case of fiscal groundhog day," says Urbis chief economist Nicki Hutley. "We are seeing the Government move the pieces on the chess board but not actually make significant inroads into the budget deficit.
"There's nothing in here that inspires a vision that is going to fundamentally change the Australian economy for the better."
Chief economist for Industry Super, Stephen Anthony, says the budget is "piecemeal".
"At best the structure of the budget continues to deteriorate and we've left no wriggle room for a global slowdown," says Anthony.
Underlying cash balance
![](/web/20170320015227im_/http://www.abc.net.au/cm/lb/7346454/data.png)
Year | Treasurer | $m | % of GDP |
---|---|---|---|
2000-01 | Peter Costello | 5,872 | 0.8 |
2001-02 | Peter Costello | -1,067 | -0.1 |
2002-03 | Peter Costello | 7,370 | 0.9 |
2003-04 | Peter Costello | 7,990 | 0.9 |
2004-05 | Peter Costello | 13,577 | 1.5 |
2005-06 | Peter Costello | 15,757 | 1.6 |
2006-07 | Peter Costello | 17,190 | 1.6 |
2007-08 | Peter Costello | 19,754 | 1.7 |
2008-09 | Wayne Swan | -27,013 | -2.1 |
2009-10 | Wayne Swan | -54,494 | -4.2 |
2010-11 | Wayne Swan | -47,463 | -3.4 |
2011-12 | Wayne Swan | -43,360 | -2.9 |
2012-13 | Wayne Swan | -18,834 | -1.2 |
2013-14 | Wayne Swan | -48,456 | -3.1 |
2014-15 | Joe Hockey | -37,867 | -2.4 |
2015-16 (e) | Joe Hockey | -39,946 | -2.4 |
2016-17 (e) | Scott Morrison | -37,081 | -2.2 |
2017-18 (e) | -26,123 | -1.4 | |
2018-19 (p) | -15,406 | -0.8 | |
2019-20 (p) | -5,955 | -0.3 |
How's revenue looking?
With revenue, Stephen Anthony reiterates that the strong growth is predicated on China's own growth forecasts, which are notoriously opaque.
General government revenue
![](/web/20170320015227im_/http://www.abc.net.au/cm/lb/7346456/data.png)
Year | Treasurer | $m | % of GDP |
---|---|---|---|
2001-02 | Peter Costello | 190,432 | 25.3 |
2002-03 | Peter Costello | 206,778 | 25.8 |
2003-04 | Peter Costello | 222,042 | 25.8 |
2004-05 | Peter Costello | 242,354 | 26.3 |
2005-06 | Peter Costello | 260,569 | 26.1 |
2006-07 | Peter Costello | 277,895 | 25.6 |
2007-08 | Peter Costello | 303,402 | 25.7 |
2008-09 | Wayne Swan | 298,508 | 23.7 |
2009-10 | Wayne Swan | 292,387 | 22.5 |
2010-11 | Wayne Swan | 309,204 | 21.9 |
2011-12 | Wayne Swan | 337,324 | 22.6 |
2012-13 | Wayne Swan | 359,496 | 23.6 |
2013-14 | Wayne Swan | 374,151 | 23.6 |
2014-15 (e) | Joe Hockey | 380,746 | 23.7 |
2015-16 (e) | Joe Hockey | 396,396 | 24.0 |
2016-17 (e) | Scott Morrison | 416,862 | 24.2 |
2017-18 (e) | 449,524 | 24.9 | |
2018-19 (p) | 484,370 | 25.5 | |
2019-20 (p) | 515,062 | 25.9 |
Are there any major tax cuts or tax hikes?
"The Government is saying that they're not increasing the tax take, but they are," says Hutley.
The Government proposes to raise the tax on tobacco in 2017, and hoping that will improve tax revenue by $4.7 billion over the next four years.
Higher scrutiny on the profit movements of multinational corporations is pegged to raise another $3 billion over the next few years.
"If they can enforce this with those additional staff for the Tax Office that they're hiring, then this is a very positive and necessary step," says Hutley.
They've upped the tax on superannuation for higher income earners, so people earning over $250,000 a year will be taxed at 30 per cent for any extra super contributions over $25,000.
As far as tax cuts, the big changes are happening through the Ten Year Enterprise Tax Plan, which delivers a small income tax cut for middle-income workers and tax cuts to businesses over the next decade.
This is a staggered tax cut for medium-sized businesses with turnover of less than $10 million; the medium-size businesses will also get the best of a bunch of tax concessions made to smaller businesses in the last budget.
Hutley regards this as the centrepiece of the budget, due to a welcome one per cent increase to the GDP over the long term, but takes that rise with a grain of salt. "The idea of trickle-down economics has of course not been supported by the evidence," she says.
Major initiatives - revenue items
![](/web/20170320015227im_/http://www.abc.net.au/cm/lb/7346458/data.png)
Total ($m) | |
---|---|
Tobacco excise – measures to improve health outcomes and combat illicit tobacco | 4,707 |
Tax Integrity Package – establishing the Tax Avoidance Taskforce | 3,060 |
Superannuation Reform Package – reforming the taxation of concessional superannuation contributions | 2,443 |
Superannuation Reform Package – introduce a $1.6 million superannuation transfer balance cap | 1,996 |
Superannuation Reform Package – tax deductions for personal superannuation contributions | -1,000 |
Superannuation Reform Package – introducing a Low Income Superannuation Tax Offset (LISTO) | -1,605 |
Ten Year Enterprise Tax Plan – increase the small business entity turnover threshold | -2,180 |
Ten Year Enterprise Tax Plan – reducing the company tax rate to 25 per cent | -2,650 |
Ten Year Enterprise Tax Plan – targeted personal income tax relief | -3,950 |
How much are we spending?
The Government will spend more than $450 billion in the next year on general government services, which is about a quarter of the GDP.
This puts Morrison's budget at the same level of government spending as Wayne Swan's 2010 election-year budget.
"After spending like drunken sailors in the past decade, we have not addressed controlling or cutting spending, and until we do so we are not going to get this budget under control," says Anthony.
"The Government has made a very strong point about responsible expenditure and yet this budget demonstrates the reality of trying to cut expenditure at a time when our economy demands more for ageing, for health, education and for infrastructure," says Hutley.
"It's interesting because they've pushed quite a few of the expenditure items out over the forward estimates period."
General government spending
![](/web/20170320015227im_/http://www.abc.net.au/cm/lb/7346460/data.png)
Year | Treasurer | $m | % of GDP |
---|---|---|---|
2001-02 | Peter Costello | 192,984 | 25.6 |
2002-03 | Peter Costello | 201,113 | 25.0 |
2003-04 | Peter Costello | 215,235 | 25.0 |
2004-05 | Peter Costello | 229,092 | 24.8 |
2005-06 | Peter Costello | 241,665 | 24.2 |
2006-07 | Peter Costello | 258,761 | 23.8 |
2007-08 | Peter Costello | 279,862 | 23.7 |
2008-09 | Wayne Swan | 324,188 | 25.8 |
2009-10 | Wayne Swan | 339,829 | 26.2 |
2010-11 | Wayne Swan | 355,667 | 25.3 |
2011-12 | Wayne Swan | 377,220 | 25.4 |
2012-13 | Wayne Swan | 381,980 | 25.1 |
2013-14 | Wayne Swan | 414,047 | 26.1 |
2014-15 | Joe Hockey | 414,898 | 26.0 |
2015-16 (e) | Joe Hockey | 431,470 | 26.1 |
2016-17 (e) | Scott Morrison | 450,553 | 26.2 |
2017-18 (e) | 464,812 | 25.7 | |
2018-19 (p) | 489,324 | 25.8 | |
2019-20 (p) | 511,604 | 25.7 |
What are the biggest spending cuts?
The biggest spending cut is actually a diversion of funds already in the Social Services portfolio to save money for the future of the National Disability Insurance Scheme.
So the saving will eventually become expenditure, but beyond the forward estimates.
Stephen Anthony says; "most of it is rabbit out of a hat stuff. We're talking about savings to a program that doesn't exist yet."
Cuts to universities announced by the Abbott/Hockey partnership that did not get through the Senate are included in this budget. This is a $2 billion 'saving' starting with a $100 million cut in the next year, increasing to half a billion for each of the following two years, and nearly $800 million a year by 2020.
In the forward estimates, the Government will increase the public service efficiency dividend, so that will mean further job losses for public servants in the coming years.
"If you look at what they're doing to the individual portfolios - they're quite savage," says Hutley. "The public sector and the Canberra economy will take another significant hit if these changes are brought about."
Another saving is deferral of the child care subsidies promised in the last budget, they've been pushed backward another year pending approval of cuts to family benefits.
Further cuts include Work for the Dole, with the whole model being reworked into a new youth employment program.
Top 10 major savings
These are the biggest savings, ranked by the total dollar change over the four-year forward estimates.
![](/web/20170320015227im_/http://www.abc.net.au/cm/lb/7346462/data.png)
Total ($m) | ||
---|---|---|
1 | National Disability Insurance Scheme Savings Fund | 2,186 |
2 | Higher Education Reform - further consultation | 1,982 |
3 | Public Sector Transformation and the Efficiency Dividend | 1,424 |
4 | Jobs for Families Package - deferred implementation | 1,103 |
5 | Aged Care Provider Funding - further revision of the Aged Care Funding Instrument | 1,152 |
6 | Medicare Benefits Schedule - pause indexation | 925 |
7 | Asset Recycling Initiative - return of unallocated funds | 854 |
8 | Youth Employment Package - Work for the Dole - reform | 494 |
9 | Industry Skills Fund - efficiencies | 223 |
10 | Job Commitment Bonus - cessation | 242 |
What do we spend the most on?
The top programs do not tend to change, year by year, as they are the big ticket items in the budget.
The largest spend is the revenue assistance paid to states and territories, mainly generated via the GST.
The aged pension is the next big ticket item and is more than double that of the next largest spending program, Medicare.
Top 10 largest programs
These are the most expensive programs the Government will spend money on in the next year.
![](/web/20170320015227im_/http://www.abc.net.au/cm/lb/7346464/data.png)
2016-17 ($m) | ||
---|---|---|
1 | Revenue Assistance to the States and Territories | 61,265 |
2 | Income support for seniors | 45,374 |
3 | Medicare benefits | 21,956 |
4 | Family tax benefit | 19,341 |
5 | Assistance to the States for public hospitals | 17,912 |
6 | Income Support for People with Disability | 17,056 |
7 | Residential and flexible care | 11,319 |
8 | Pharmaceutical and pharmaceutical services | 10,800 |
9 | Non-government schools - national support | 10,554 |
10 | Job seeker income support | 10,458 |
What about any new spending plans?
The biggest spend in the next four years is the new contributions to schools and hospitals, which was negotiated in the April meeting with the state and territory leaders. The funding does not kick in straight away, with the first funds coming through mid 2017, and the biggest increases kick in 2019.
The Government has included a combined half a billion dollars for next year's military operations in the Middle East (Operations Okra and Accordion), but has not budgeted for that level of funding over the long term.
Another cornerstone in new spending is the new youth employment package, which restructures the Work for the Dole program into more youth funding including an internship program.
Hutley says this is a welcome initiative considering the need to support young people finding work in a very different job market to their parents, however says that subsidised employment has been ''fraught with difficulty'' in the past.
"Often it hasn't led to greater employment. It has been a cheap employment scheme for small businesses."
Top 10 major initiatives
These are the largest new spending initiatives for this budget as a total over the forward estimates.
![](/web/20170320015227im_/http://www.abc.net.au/cm/lb/7346468/data.png)
Total ($m) | ||
---|---|---|
1 | Public Hospitals – new funding arrangements | -2,859.8 |
2 | School funding – additional funding from 2018 | -927.6 |
3 | Operation Okra – extension | -387.6 |
4 | Youth Employment Package – Youth Jobs PaTH (Prepare-Trial-Hire) | -249.4 |
5 | Operation Accordion – extension | -196.4 |
6 | My Aged Care – consumer access | -136.5 |
7 | Cyber Security – implementation of Australia's cyber Security Strategy | -118.6 |
8 | School funding– additional funding for students with a disability | -118.3 |
9 | Western Sydney Airport – further preparatory works | -115.1 |
10 | National Resources Development Strategy – exploring for the future | -100.5 |
What's the outlook for economic growth?
Within the budget papers, the Treasury stated that Australia is growing faster than other developed economies, which is a reason for optimism in the economic forecasts.
Hutley urges caution: "Above trend growth in the back half of the forward estimates is very optimistic given that the global economy remains fragile and given that there's no strong evidence that the transition away from mining is not happening as quickly as we need... The 2.5 per cent increase is reasonable. But I think the 3 per cent could be difficult to achieve."
Stephen Anthony says that there are great risks around the optimistic budget outlook, especially as part of the outlook relies on China's own optimistic forecasts.
"The budget is still 'made in China'," he says. "Australia is the most exposed economy to a China downturn as around one third of our merchandise exports (by value) flow to China."
Growth of the Australian economy
![](/web/20170320015227im_/http://www.abc.net.au/cm/lb/7380332/data.png)
Financial Year | Growth in 'real' GDP |
---|---|
2005-06 | 3 |
2006-07 | 3.8 |
2007-08 | 3.7 |
2008-09 | 1.8 |
2009-10 | 2 |
2010-11 | 2.4 |
2011-12 | 3.6 |
2012-13 | 2.4 |
2013-14 | 2.5 |
2014-15 | 2.2 |
2015-16 (f) | 2.5 |
2016-17 (f) | 2.5 |
2017-18 (f) | 3 |
2018-19 (f) | 3 |
2019-20 (f) | 3 |
What's the outlook for employment?
Tiny changes to the percentiles of employment growth, unemployment rates and wage growth can hugely affect the budget bottom line.
Jobs growth is certainly something that the Turnbull/Morrison partnership is celebrating, as it's one of the few positive economic outcomes they could reasonably mark as an achievement during their term.
What is striking about the employment forecasts is the optimism up until 2018, when the Treasury then pares back employment growth.
"Presumably the stronger growth in employment forecasts over the next two years is due to stronger growth in the service industries like financial services and tourism," Hutley says.
"This won't continue forever and so the pace of growth in employment will also slow to a certain amount in the out years."
Employment growth
Growth from previous year's June quarter.
![](/web/20170320015227im_/http://www.abc.net.au/cm/lb/7380330/data.png)
Financial Year | % Growth |
---|---|
2005-06 | 2.3 |
2006-07 | 3.1 |
2007-08 | 3.0 |
2008-09 | 0.2 |
2009-10 | 2.2 |
2010-11 | 1.9 |
2011-12 | 1.1 |
2012-13 | 1.1 |
2013-14 | 0.5 |
2014-15 | 1.6 |
2015-16 (f) | 2 |
2016-17 (f) | 1.8 |
2017-18 (f) | 1.8 |
2018-19 (f) | 1.3 |
2019-20 (f) | 1.5 |
Unemployment rate
![](/web/20170320015227im_/http://www.abc.net.au/cm/lb/7380338/data.png)
Financial Year | Unemployment Rate |
---|---|
2005-06 | 4.8 |
2006-07 | 4.3 |
2007-08 | 4.2 |
2008-09 | 5.9 |
2009-10 | 5.2 |
2010-11 | 4.9 |
2011-12 | 5.2 |
2012-13 | 5.7 |
2013-14 | 6.1 |
2014-15 | 6.1 |
2015-16 (e) | 5.8 |
2016-17 (e) | 5.5 |
2017-18 (e) | 5.5 |
2018-19 (e) | 5.5 |
2019-20 (e) | 5.5 |
What's the outlook for inflation?
When inflation is lower, there are lower profits to tax, and therefore less money for the government coffers. For the economy to remain buoyant, it's best for inflation to hover around the 2 to 3 per cent growth mark.
Recently, inflation has been surprisingly sluggish and dipped for the first time since the Global Financial Crisis. While prices are not actually decreasing, they're not in that 'comfortable' increasing range.
For this budget, the Treasury has predicted inflation will get back into that comfortable range in the hope that tweaks to stimuli, like the Reserve Bank reducing interest rates, will push it back up within the desired range.
"We have entered a deflationary era so it's going to be very difficult for the Reserve Bank to achieve its inflation target," says Anthony.
Hutley says: "Given the Reserve Bank lowered interest rates on budget day, specifically due to much weaker than expected inflation, it may be that inflation is lower than forecast over the next two years."
Inflation
Inflation is calculated by tracking the changing costs of commonly used goods and services through the Consumer Price Index (CPI).
The growth of CPI is calculated by the percentage change from the June quarter from the previous year.
![](/web/20170320015227im_/http://www.abc.net.au/cm/lb/7380334/data.png)
Financial Year | Growth of CPI |
---|---|
2005-06 | 4 |
2006-07 | 2.1 |
2007-08 | 4.4 |
2008-09 | 1.4 |
2009-10 | 3.1 |
2010-11 | 3.5 |
2011-12 | 1.2 |
2012-13 | 2.4 |
2013-14 | 3 |
2014-15 | 1.5 |
2015-16 | 1.3 |
2016-17 (p) | 2 |
2017-18 (p) | 2.3 |
2018-19 (p) | 2.5 |
2019-20 (p) | 2.5 |
What's our debt position?
Net debt is nearing $326 billion, which is 19 per cent of GDP.
"Australians net debt position is not a problem at the moment," says Hutley.
"We compare extremely favourably by international standards, but if we don't address budget deficits we will find ourselves slipping down the list very quickly."
We will not be cutting that debt down significantly until our underlying cash balance returns to surplus, with no indication of a surplus occurring in the next four years.
Debt has not been at those levels for 20 years.
"The last time debt was at the same level was in 1995-96 financial year," says Hutley.
"The important thing to remember is that after that period, through economic growth and the mining boom, we were able to repair the budget. Looking forward though, we're highly unlikely to see either those strong levels of growth or obviously another mining boom.
The task ahead now is much more difficult, we can't rely on economic growth to solve the problem."
Net debt
![](/web/20170320015227im_/http://www.abc.net.au/cm/lb/7346472/data.png)
Year | Treasurer | $m | % of GDP |
---|---|---|---|
2000-01 | Peter Costello | 42,719 | 6.1 |
2001-02 | Peter Costello | 38,180 | 5.1 |
2002-03 | Peter Costello | 29,047 | 3.6 |
2003-04 | Peter Costello | 22,639 | 2.6 |
2004-05 | Peter Costello | 10,741 | 1.2 |
2005-06 | Peter Costello | -4,531 | -0.5 |
2006-07 | Peter Costello | -29,150 | -2.7 |
2007-08 | Peter Costello | -44,820 | -3.8 |
2008-09 | Wayne Swan | -16,148 | -1.3 |
2009-10 | Wayne Swan | 42,283 | 3.3 |
2010-11 | Wayne Swan | 84,551 | 6.0 |
2011-12 | Wayne Swan | 147,334 | 9.9 |
2012-13 | Wayne Swan | 152,982 | 10.1 |
2013-14 | Wayne Swan | 202,463 | 12.8 |
2014-15 | Joe Hockey | 238,721 | 14.8 |
2015-16 (e) | Joe Hockey | 325,962 | 17.3 |
2016-17 (e) | Scott Morrison | 325,962 | 18.9 |
2017-18 (e) | 346,842 | 19.2 | |
2018-19 (p) | 356,373 | 18.8 | |
2019-20 (p) | 355,066 | 17.8 |
Net debt - international comparison (2016)
Here's a look at how Australia's net debt position compares to a selection of advanced economies. The data is for 2016 and comes from the International Monetary Fund.
![](/web/20170320015227im_/http://www.abc.net.au/cm/lb/7346474/data.png)
Country | % of GDP |
---|---|
Italy | 111.800 |
France | 90.499 |
United States | 82.192 |
United Kingdom | 80.611 |
Canada | 27.468 |
Australia | 19.510 |
New Zealand | 7.363 |
Sweden | -15.554 |
Norway | -285.551 |
Budget 2016: Full coverage
- Live blog: Scott Morrison's first budget
- Overview: What's in the budget?
- Winners and losers: Who gains?
- Budget cheat sheet: What you need to know
- Sliced and diced: Where every dollar goes
Credits
- Reporter: Clare Blumer
- Designer: Ben Spraggon
- Developer: Colin Gourlay
- Editor: Matt Liddy
Unless stated otherwise, all data comes from Treasury Budget Papers or the Australian Bureau of Statistics.
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Deficit
Politicians of all stripes are fond of comparing the budget to a family's finances, but this often leads to confusion.
When a politician says they are balancing the books and returning the budget to surplus, it gives the impression that they are clearing the government's debt.
The reality is that the deficit is just the amount of money the government spends beyond what it receives in a financial year.
Just because you return the budget to surplus does not mean that the debt incurred by the previous deficits disappears.
Bracket creep
Bracket creep occurs when tax rates do not keep up with wage increases in the economy, pushing wages up to a higher bracket, and resulting in the government taking more tax revenue.
Tax brackets are designed to be indexed to account for increases in inflation; however, the indexes are usually set manually, and leaving them stationary while wages grow allows the government to increase the amount of revenue it takes from taxpayers without raising taxes.
Tax expenditures
Tax expenditures are sources of revenue the Government goes without due to tax concessions. While they are not government spending, they represent significant losses of potential revenue for the Government.
In 2015–16, the top 25 expenditures hit the budget bottom line to the tune of $130 billion, with more than $50 billion lost on capital gains tax.
And while some of this is offset by increases in productivity and increased spending, it remains a significant source of potential revenue the government is missing out on.
Among the most well-known examples of tax expenditures are superannuation concessions and the capital gains tax exemption on the family home.
Superannuation concessions
Super concessions are tax breaks designed to encourage people to put more money into superannuation, in theory saving the government money down the track by reducing the burden these people will have on the public purse when they retire.
Currently superannuation is taxed at 15 per cent, with super earnings not taxed at all once you hit 60 years of age. Employers are required to put a minimum of 9.5 per cent of an employee's income into a super fund.
The superannuation concession allows people to voluntarily contribute more to their superannuation and still be taxed at the rate of 15 per cent (or 30 per cent if you're really well off), well below the majority of tax rates.
The concessions have been criticised for disproportionately benefiting the wealthy, who get a much bigger discount on their normal income tax rates than those in lower tax brackets.
With many wealthy people likely to be ineligible for the pension on reaching retirement anyway, critics argue that the concessions cost the government far more in lost revenue than it would cost to support wealthy individuals with the aged pension.
Superannuation concessions cost the federal budget $30 billion in 2015–16.
Negative gearing
While the Coalition has directly ruled out changes to negative gearing in this budget, Labor's negative gearing policy means the issue is sure to remain in the headlines.
Negative gearing allows property investors to write the interest costs of their mortgages off as an income tax deduction against other sources of income, and has been blamed for soaring property prices as it subsidises loss-making real estate investments.
Labor wants to restrict negative gearing to new properties from 2017, as well as reduce the capital gains tax discount. (Currently investors are only taxed on half of their investment profits from capital gains if they hold an asset for at least one year.)
Forward estimates
The forward estimates are a series of projections, released alongside the budget, which predict revenue and expenses for the next four financial years.
As they rely on assumptions about revenue and indicators, they are often subject to change — as the mining boom unfolded, the estimates often undervalued the amount of revenue, and since commodity prices peaked they have had to be revised downwards.
But the estimates are seen as a useful way of showing the government's longer-term plans for spending.
GDP
The gross domestic product (GDP) is the annual value of goods and services produced by a country. GDP is generally recognised as one of the key indicators of the state of a country's finances.
Nominal GDP
A version of the GDP that has not been adjusted for inflation. This means the GDP will appear higher than it actually is, as it fails to take into account the devaluing effect of inflation.
However, it is also the measure of GDP that is most closely related to government revenue and spending, as both are affected by inflation.
Terms of trade
'Terms of trade' measures the relationship between the prices a country receives for its exports and the prices it pays for its imports.
A rising terms of trade means the nation is getting better prices for its exports relative to what it pays for imports, and vice versa.
Australia benefitted from rising terms of trade during the mining boom as the prices of iron ore, coal, and other commodities surged, while the price of many imports such as electronics and clothes stayed steady or fell.
Economists are cautious about drawing too many conclusions from high or low terms of trade figures, but trends in the movement of the terms of trade are useful for predicting changes in the standard of living.
PEFO
The Pre-election Economic and Fiscal Outlook (PEFO) is released by the Federal Treasury shortly before the federal election, and represents Treasury's and Finance's predictions on the current and future state of the economy.
While budget bottom lines are often open to manipulation by governments, the PEFO is put together independently and is the only outlook signed off by the heads of Treasury and Finance.
The Mid-Year Economic and Fiscal Outlook (MYEFO) is an update to the budget that the government releases halfway through the financial year.
Parameter variations
Parameter variations refer to the budget's assumptions about the economy (such as growth, inflation and unemployment) and how these will affect revenue and costs.
Structural deficit
A structural deficit refers to a situation where the current tax structures of a country will fail to cover the expenses under normal economic conditions.
Governments commonly run deficits in times of economic downturn as a means of insulating the economy and ensuring services are not impacted, with the understanding that surpluses during peak times will help pay down the debt incurred by going into deficit.
A government can still run surpluses but be in structural deficit — for example, towards the end of the Howard government terms, revenue from the mining boom allowed it to post surpluses — however, under normal conditions the budget would have been in deficit.
Working out whether a government has a structural deficit is complicated by the changing nature of sources of revenue and costs for governments, but governments and economic organisations try to remove the influence of temporary impacts on the budget bottom line to assess the long-term prospects for the economy.
Topics: budget, federal-government, australia
First posted