NO.104

2003-04 MID-YEAR ECONOMIC AND FISCAL OUTLOOK

The 2003-04 Mid-Year Economic and Fiscal Outlook (MYEFO) released today demonstrates

the continued resilience of the Australian economy and reflects the Government’s

ongoing commitment to a strong economy through sustainable fiscal management.

The Australian economy is forecast to grow by 3¾ per cent in

2003-04, an upward revision from the 3¼ per cent forecast at

the 2003-04 Budget. The upward revision comes against a backdrop of improving

sentiment about domestic and external growth prospects. Generally, the near-term

outlook for the Australian economy has brightened since Budget, with increasing

signs of global recovery, particularly in the United States, and an easing in

drought conditions over much of Australia.

Employment is forecast to grow by 1½ per cent, and the unemployment rate

is forecast to average around, or possibly a little below current levels of

5¾ per cent. Inflation is forecast to decline to around 2 ¼ per cent

in the year to the June quarter 2004.

The improving fiscal outlook since the 2003-04 Budget is underpinned by increased

budget surpluses projected across the forward estimates years, an impressive

result when compared to the significant deficits being experienced by many major

advanced economies.

The Government now expects an underlying cash surplus of $4.6 billion

in 2003-04, an improvement of $2.5 billion since the 2003-04 Budget. This

is primarily the result of an increase in cash receipts of $3.7 billion,

principally the result of higher company profits leading to higher company tax

collections.

This rise in receipts is partly offset by an increase in estimated 2003-04

cash payments, primarily due to $1.0 billion of new policy decisions taken

by the Government since the Budget. Decisions include increased funding for

health with the introduction of MedicarePlus, and new listings on the Pharmaceutical

Benefits Scheme of drugs such as Enbrel, Avandia/Actos, and Mabthera . The Government

has also provided additional drought relief funding and assistance to the Solomon

Islands in restoring law and order.

After just three years of The New Tax System, six States and Territories

are expected to receive more revenue in 2003-04 than the Guaranteed amount they

would have received under the old tax system. Compared to Budget, the MYEFO

estimates show that South Australia no longer requires Budget Balancing Assistance

in 2003-04. When added to the five other States and territories estimated at

Budget to be better off in 2003-04 – Queensland, Western Australia, Tasmania,

the Australian Capital Territory and the Northern Territory – these six States

or territories are estimated to be better off by some $575 million in 2003-04.

Net debt is forecast to continue to fall in 2003-04 around to $23.3 billion

mainly as a result of the higher than anticipated final budget outcome for 2002-03

and an upwards revision to the projected surplus for 2003-04. This represents

a reduction in net debt of around $73 billion from Labor’s peak of $96 billion.

Net worth is also expected to improve to -$43.3 billion in 2003-04, compared

with -$46.1 billion expected at the 2003-04 Budget, reflecting an improvement

in the fiscal outlook since the 2003-04 Budget.

The initial forecast for 2004-05 is for economic growth of around 3½ per

cent. Domestic demand is expected to be solid and external conditions should

be supportive of growth. Employment growth is forecast to be moderate and inflation

is expected to fall a little further.

There are still risks around the outlook, particularly regarding the sustainability

of the international recovery, but overall the near-term risks have diminished

since Budget and are now more evenly balanced.

CANBERRA

8 December 2003

Contact: David Alexander

02 6277 7340