Post-Budget 2004.pptInitial assessment of theInitial assessment of the 20042004--05 Federal Budget05 Federal Budget
Saul EslakeSaul Eslake with the assistance ofwith the assistance of David de David de GarisGaris & Katie Dean& Katie Dean
11 May 200411 May 2004
ANZ Budget Night dinnerANZ Budget Night dinner
2 Economics@
The Budget’s centrepiece The Budget’s centrepiece -- $15bn in $15bn in income tax cuts, rolled out over 2 income tax cuts, rolled out over 2 yearsyears
Note: Does not include the 1.5% Medicare levy
Over $70,000
$58,001 - $70,000
$21,601 - $58,000
$6,001 - $21,600
$0 - $6,000
Tax rate
Taxable income
3 Economics@
Income tax cuts will cost $15bnIncome tax cuts will cost $15bn
Net change in revenue ($bn)
5.38
0.63
4.75
06-07
0.890.340.09-0.17Other
15.664.593.891.80Total
Total05-0604-0503-04
Note: figures in this table are in accrual, not cash, terms
4 Economics@
Net increase in spending ($bn)
9.0
0.8
0.8
0.8
0.6
4.8
07-08
1.60.40.20.2Education
29.87.86.86.2Total
5 Economics@
The ‘underlying’ cash surplus for The ‘underlying’ cash surplus for 20042004--05 lowered to $2.4bn05 lowered to $2.4bn
‘Underlying’ cash surplus
1.6
4.6
2.4 0 1 2 3 4 5 6 7 8 9
2003-04 2004-05 2005-06 2006-07 2007-08
2003-04 Mid-Year Review 2004-05 Budget
$ billion
The ‘underlying’ cash surplus is the cash surplus net of sales of financial assets and net advances to State and Territory governments.
6 Economics@
‘Telstra 3’ sale pushed out to ‘Telstra 3’ sale pushed out to 20062006--0707
‘Underlying’ and ‘headline’ cash surpluses
0
2
4
6
8
10
12
14
16
'Underlying' 'Headline'
7 Economics@
Accruals measure of the Budget Accruals measure of the Budget bottom line remains in surplusbottom line remains in surplus
‘Fiscal balance’ (accruals measure)
0 1 1 2 2 3 3 4 4 5
2003-04 2004-05 2005-06 2006-07 2007-08
2003-04 Mid-Year Review 2004-05 Budget
$ billion
8 Economics@
0.0 1.0
2.0 3.0
4.0 5.0
6.0 7.0
8.0 9.0
10.0 $bn
Key steps in putting together the Key steps in putting together the 20042004--05 Budget (accruals basis) 05 Budget (accruals basis)
Fiscal balance
tions (+$7.3bn)
Fiscal balance
Net revenue
reductions (-$1.8bn)
9 Economics@
The extra cash has come from The extra cash has come from companies, individuals and ‘other’companies, individuals and ‘other’
Reconciliation of Budget and Mid-Year review 2004-05 revenue estimates
1.8
-0.1
1.5
0.2
4.4
1.0
-1
0
1
2
3
4
5
$ billion
Note: Other taxes are taxes on superannuation funds, Petroleum resource rent tax, Fringe benefits tax, Agricultural levies and other taxes; Figures in this table are in accrual, not cash, terms
10 Economics@
The Budget represents a conscious The Budget represents a conscious easing of fiscal policyeasing of fiscal policy
26.98.18.06.64.2Changes in economic and other assumptions
$bn
3.4
-12.4
7.7
06-07
Reconciliation of Mid-Year Review and Budget ‘underlying’ cash balance estimates ($ bn)
11 Economics@
It’s the seventh consecutive year of It’s the seventh consecutive year of net policy ‘givenet policy ‘give--aways’aways’
Impact of policy decisions on the Budget ‘bottom line’ over rolling four-year periods
-45
-35
-25
-15
-5
5
15
25
2001 election
2004 election
Policy decisions up to and including budget for year stated
12 Economics@
Key assumptions and influences on Key assumptions and influences on the 2004the 2004--05 forecast05 forecast
Growth drivers
l Average seasonal conditions for farmers; continued recovery
l Oil prices increase over the near term and then fall gradually over 2004- 05
l A$ TWI around 63 (recent average)
l Interest rates ‘remain around current levels’
Assumptions
l Slowdown in domestic demand growth to 3¾% from 6% in 2003-04
l Stronger world economy a continued source of growth – net exports less of a detraction
Key risks l Housing investment,
house prices and household debt
13 Economics@
Treasury expects strong growth in Treasury expects strong growth in the global economythe global economy
Real GDP growth
na(3½)(3)(Previous forecast)
232.7-0.3Japan
3¾4¾3.12.2United States
2005200420032002
Real GDP growthl Forecast for 2003-04 unchanged at 3¾%
– requires 0.7% growth in March and June quarters
l 2004-05 growth unchanged at 3½%
– And growth of 3½% also over the course of the financial year
l ANZ expects growth of 3¾% in 2003-04 and 3½% in 2004-05 0
1
2
3
4
5
% change
15 Economics@ Note: Charts show real p.c. changes for financial years ended 30 June.
Consumption, business investment Consumption, business investment and exports offset a fall in housingand exports offset a fall in housing
Housing
02 03 04 05
02 03 04 05
16 Economics@
Unemployment forecast to remain at Unemployment forecast to remain at 5¾% next year5¾% next year
Employment growth
Inflation expected to fallInflation expected to fall
‘Headline’ inflationl ‘Headline’ inflation to fall from 2¼% (on average) in 2003-04 to 2% in 2004-05
– reflecting the impact of earlier rise in the A$
– implies inflation over year to June 2004 of 1¾%
l Wages growth to remain steady at 3¾% in 2004-05
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
18 Economics@
Current account deficit still on the Current account deficit still on the high side next yearhigh side next year
Current account balance l Deficit to narrow from
5¾% of GDP in 2003-04 to 5% in 2004-05
l Exports to grow 8% l Import growth a touch
lower at 9%, down from 12%
– in line with slower growth in domestic demand
l Terms of trade to improve again, by 4½% in 2004- 05
– most favourable since 1989-90
-5 0
01- 02
02- 03
03- 04
04- 05
% pa
Cash rate
"Neutral zone"
Official interest rates likely to rise Official interest rates likely to rise again later this year or early 2005again later this year or early 2005
Short-term interest rates
Bank bill futures this time last year
20 Economics@
US ¢
A$/US$
A$ will come under more downward A$ will come under more downward pressure from higher US ratespressure from higher US rates
A$-US$ rate
21 Economics@
election l Embodies an easing of fiscal policy equivalent to
around 0.5% of GDP l Economic forecasts are broadly in line within
market expectations – growth forecast for 2004-05 of 3½% in line with
consensus – uncertainties around property markets a key source
of downside risk