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Part I: Overview
The 2000-01 Budget provides the Government's fourth surplus in a row. This has been achieved while delivering landmark tax reform, including substantial income tax cuts, and a range of high priority spending initiatives, such as in rural and regional Australia.
Table 1: Summary of Budget Aggregates
In accrual terms, the fiscal balance is expected to be in surplus by $5.4 billion or 0.8 per cent of GDP in 2000-01, an improvement of $1.0 billion on the corresponding estimate at the time of the Mid-Year Economic and Fiscal Outlook 1999-2000 (MYEFO). This follows an estimated surplus of $9.7 billion in 1999-2000.
In cash terms, an underlying surplus of $2.8 billion or 0.4 per cent of GDP is expected in 2000-01, an improvement of $2.3 billion on the corresponding estimate at the time of MYEFO. The outcome for 1999-2000 is estimated to be much stronger than forecast at the time of MYEFO, an improvement of $4.4 billion to an estimated outcome of $7.8 billion.
In addition to The New Tax System reforms, which include the largest personal income tax cuts in Australia's history, the Government will also provide funding in this Budget to support a number of key new initiatives, including in the areas of rural and regional Australia, health and families. The Government is also announcing in this Budget that it will not be proceeding with the temporary Defence - East Timor levy.
The 2000-01 Budget surplus, together with the surpluses projected in the forward years, is consistent with the Government's medium-term fiscal strategy of achieving fiscal balance, on average, over the course of the economic cycle.
The Government has met - indeed exceeded all of the fiscal objectives it set for itself on coming into office in 1996. The budget was returned to surplus in 1997-98, one year ahead of target, surpluses have been maintained while economic growth prospects remain sound, the ratio of Commonwealth net debt to GDP has been more than halved, the tax burden has not increased, and expenses as a share of GDP have fallen.
The Australian economy is expected to continue to grow solidly by 3¾ per cent in 2000-01, following three years of strong growth of over 4 per cent a year. The growth forecasts have been revised up since the MYEFO, and this has contributed to the improvement in the budget surplus for 2000-01.
Inflationary pressures are expected to remain low, with ongoing inflation forecast to remain within the Reserve Bank's target band of 2 to 3 per cent on average over the course of the cycle. The introduction of The New Tax System will result in a one-off increase in prices, lifting the CPI to 5¾ per cent for 2000-01 as a whole. However, compensation measures and competitive pressures in the economy should ensure that this one-off impact is not built into ongoing inflation.
Table 2: Major Economic Parameters (percentage change from
(a) Labour Force Survey basis.
(b) Average earnings (national accounts basis).
(c) The CPI projections are set as the mid-point of the medium-term inflation target and as such make no allowance for the further impact of The New Tax System, as discussed in Statement 3.
While recent economic growth has been strong, it has been sustainable and imbalances that might otherwise have shortened the expansion have not emerged. Confidence in the macroeconomic policy framework has played an important role. Low inflation outcomes have been consistently achieved.
Wide ranging structural reform has made an important contribution to the good growth outcomes. Labour market and competition policy reforms have resulted in strengthened competitive pressure in product markets and delivered improved productivity, sustainable rises in real wages and falling unemployment.
Maintenance of a sound macroeconomic policy framework has been essential in ensuring continued good economic performance. As a key element in that policy framework, the Government's fiscal strategy has helped to maintain investor confidence and contributed to a lower interest rate environment.