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15 December 2015

Treasurer Scott Morrison and Minister for Finance Mathias Cormann released the Mid-Year Economic and Fiscal Outlook (MYEFO) from Perth today, which offers a sober assessment of the nation’s finances. Describing today’s update as a more realistic outlook, the Treasurer announced economic growth figures for 2015-16 have been cut from 2.75 to 2.5%, while growth expectations for next year have been revised down by half a percent, to 2.75%.
Amid falling revenue expectations, the Treasurer confirmed the budget deficit for the current financial year will rise to $37.4 billion, up from the $35.1 billion forecast in May. The budget position will fair worse next year, with the deficit blowing out from the predicted $25.8 billion to $33.7 billion. A further $28 billion has been added to budget deficits across the four year forward estimates.
In further sombre news for the Government, a return to surplus has been pushed back a year to 2020-21, and gross government debt is now predicted to reach $647 billion by 2025. MYEFO also confirms the Government has abandoned its commitment to return the budget to a surplus of 1% of GDP by 2023-24, now promising to do so “as soon as possible”.
MYEFO also outlines $10.2 billion in new spending initiatives since the May budget, which have been offset by savings measures totalling more than $10.6 billion. The collapse in revenue expectations is being blamed for the rising deficits, with $33.8 billion being cut from expectations across the forward estimates. A collapse in the price of iron ore is said to account for $7 billion of this total.
Diagnostic healthcare and education suffer the brunt of savings in this year’s update, with $659 million and $995 million in budget cuts respectively. A further $1.4 billion is expected to be saved through a crackdown on welfare compliance, and $359 million will be saved by capping expenditure on the Green Army Programme.
Savings Measures
  • $704 million from higher welfare payment compliance
  • $639 million for changes to bulk billing on pathology and diagnostic imaging
  • $595 million for reduced funding to health workforce programs
  • $472 million for changes to aged care funding
  • $441 million for reduced child care subsidies to households with annual income of $250,000 a year
  • $359 million over four years by capping the number of people in the Green Army Programme
 Expenditure Measures
  • $4.15 billion in lost tariffs on Chinese imports under the China-Australia Free Trade Agreement
  • $1.46 billion from scrapping the Financial Stability Fund (‘bank deposit tax’)
  • $1.1 billion in additional funding for the Roads to Recovery program
  • $909 million for resettling 12,000 Syrian refugees
  • $621 million for new listings on the Pharmaceutical Benefits Scheme (PBS)
  • $500 million in additional costs for border security and asylum seeker processing
  • $459 million in new spending for the National Innovation and Science Agenda
In good news, MYEFO predicts the unemployment rate to be lower than was anticipated in the May budget at 6%, which should remain across the forward estimates. Both the Treasurer and Finance Minister defended the Government’s efforts to bring the Budget under control and said they remain committed to some $13 billion in savings measures that are still before the Parliament.
Mid-Year Economic and Fiscal Outlook (MYEFO)
Treasurer’s Statement
Also in Queensland today, Treasurer Curtis Pitt released the Mid-year Fiscal and Economic Review as part of the 2015-16 Budget.
The MYFER has become an opportunity to re-set the economic debate and to set the Government’s economic narrative for the months leading to the next State Budget.
Key economic indicator forecasts:
  • GSP growth of 4%
  • Unemployment steady at 6.5%; trending down to 6% through to 2018-19
  • CPI of 2%
  • Population growth of 1.5%
  • Surpluses of over $1 billion through to 2018-19; with a confirmed $1.2 billion surplus for 2015-16.
The Government has now confirmed its decision against the merger of generation businesses CS Energy and Stanwell, due to competition policy concerns.  The State owned transmission company Powerlink, will also remain an independent entity.
The Treasurer has also confirmed the merger of the Energex and Ergon distribution businesses to deliver projected savings of $680 million through to 2019-20.  The new entity will be in place by mid-2016.
In addition a new energy services business will be formed by combining the competitive elements from Energex and Ergon, to deliver products such as solar panels, battery storage, energy management, smart meters and demand management solutions.  This business will be headquartered in Townsville.
Government Owned Corporations and the Debt Action Plan
Other than for the energy network businesses, the current dividend payout ratio for Government Owned Corporations (GOCs) is 80% of net profit after tax.
It is now proposed to move the payout ratio for all government owned corporations, other than CS Energy Limited, to 100%.  This will deliver $1 billion to the general government sector across the forward estimates.
The Government plans to raise $1 billion for debt reduction by regearing Gladstone Port Corporation, North Queensland Bulk Ports and Sunwater.  Under the new gearing arrangements, GOCs will be able to make additional borrowings and distribute funds to government via a special dividend payment.  This will bring GOC gearing levels into closer alignment with the private sector.  This one-off of cash injection will bring the Government closer to its commitment to pay down general government debt.  Total government debt, which includes the debt of all GOCs and impacts on the assessment of international ratings agencies, remains closer $80 billion.
The following chart, taken from the MYFER shows general government sector borrowings through to 2018-19.  

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