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Statement 2: Fiscal Outlook

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Appendix B: Sensitivity of fiscal aggregates
to economic developments

Table B1 provides a guide to the sensitivity of the forward estimates of expenses and revenue to variations in economic parameters in 2001-02. It is important to recognise that such guides provide only a `rule of thumb' indication of the impact on the budget of changes in prices, wages and other parameters.

Table B1: Sensitivity of financial aggregates to changes
in economic parameters

Table B1:  Sensitivity of financial aggregates to changes 
in economic parameters

Expenses

On the expenses side, the sensitivity analysis of the estimates provides for the following assumptions about changes to four broad groups of parameters.

Prices

All price deflators are assumed to change by one percentage point at the start of the September quarter 2001, with wage deflators left unchanged.

Wages

All wage and salary growth rates are assumed to change by one percentage point from the beginning of the September quarter 2001, with price deflators left unchanged.

Unemployment benefit recipients (includes Newstart Allowance and unemployed Youth Allowance recipients)

The total number of recipients is assumed to change by 5 per cent in the Budget year and in all the forward years.

Safety Net Adjustment

The Safety Net Adjustment (SNA) determined by the Australian Industrial Relations Commission is assumed to change by $2 per week, taking effect from the beginning of the September quarter 2001, and each year after that.

Revenue

The assumptions underlying the sensitivity of the revenue estimates to changes in prices and wages are similar to those used for expenses. In each case, the analysis presents the estimated effects of a change in one economic variable only, and does not attempt to capture the linkages between economic variables that characterise changes in the economy more broadly.

The revenue effects of changes in employment and private final demand show the impact of the following assumed changes:

For the purposes of this analysis:

An increase in any of the parameters considered will lead to an increase in revenue, and a decrease in any of the parameters will lead to a reduction in revenue.

Relative to the 2000-01 Budget, the sensitivity of revenue to prices has fallen. This is attributable to the decision to abolish petroleum excise indexation. Hence, changes in the price deflator from the beginning of the September quarter 2001 no longer affect the petroleum excise revenue estimates.

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