Defence Budget2015

Mark Thomson

Outline:

• Defence Budget Status

• Capital Investment and Industry

• Budget Prospects

Defence Budget Status

Slide 1

Recession

Recession

NOT a recession

Australia’s GDP 1959 to 2012

“Within a decade, the budget surplus will be 1 per cent of GDP,

defence spending will be 2 per cent of GDP, the private health

insurance rebate will be fully restored, and each year, government

will be a smaller percentage of our economy.”

Fiscal problems represent political

rather than economic constraints

on the government’s freedom of action.

$29.3 billion

1.8% of GDP

• 6% year-on-year boost

• $1.5 billion brought forward over 4 years

2014 Budget:

Capital Investment

and Industry

Budget Prospects

Within a decade, the budget surplus will be 1 per cent of GDP,

defence spending will be 2 per cent of GDP, the private health

insurance rebate will be fully restored, and each year,

government will be a smaller percentage of our economy.

…each year, government will be a smaller

percentage of our economy.

Falling

Revenues

Restive

Electorate

The Fiscal Outlook

Budget Forecasts

Economic Parameters

• Unemployment: 6.25% → 6.50%

• CPI: 2.25% → 2.50%

• Wages: 3.00% → 2.50%

• Real GDP: 2.50% → 2.50%

• Nominal GDP 3.00% → 1.50%

What went wrong (part 1)?

Economic Factors

• Iron ore price fall: -$16.7 billion

• Weak wages and employment: -$10.9 billion

• Other taxes: -$10.2 billion

-$37.8 billion

What went wrong (part 2)?

Impact of the Senate

• Delays to budget measures: - $3.4 billion

• Negotiated reductions: - $7.2 billion

-$10.6 billion

The Government’s response:

• $1.3 billion extra for national security

• $3.7 billion less for foreign aid

• $0.4 billion saving on depreciation

• APS staffing cuts

• APS and ADF wage restraint

• Streamlined government

Net result: savings of $4.1 billion

The Bottom Line:

Economic Factors: - $37.8 billion

New initiatives: + $4.1 billion

Senate: - $10.6 billion

Net result: - $44.3 billion

Plus $33.9 billion of savings pending!

Last possible date for next election

1% of GDP ~ $16 billion

Nonetheless…

Fiscal problems represent political

rather than economic constraints

on the government’s freedom of action.

The Electorate

Questions