NO.109

2004-05 MID-YEAR ECONOMIC AND FISCAL OUTLOOK

The 2004-05 Mid-Year Economic and Fiscal Outlook (MYEFO) released today shows

that Australia remains in a strong Budget position in a climate of moderating

– but solid – growth.

Although the outlook for real economic activity has been revised down modestly

since the Pre-Election Economic and Fiscal Outlook 2004 (PEFO), reflecting

weaker than anticipated export growth, the Australian economy is expected to

record solid growth of 3 per cent in 2004-05 and 3percent in 2005-06.

Employment growth is expected to remain robust and the unemployment rate, which

has recently fallen to 27-year lows, is expected to stay at around current low

levels. The outlook is for inflation to remain low.

Clear evidence indicates a cooling in the housing market and the forecast remains

for an orderly and relatively mild decline in housing investment. High oil prices

remain a risk, primarily through their impact on global growth and prospects

for Australian exports.

The fiscal outlook remains strong — the underlying cash surplus for 2004-05

is expected to be higher than at PEFO and the 2004-05 Budget — and surpluses

are forecast over the forward years. The projected underlying cash surpluses

emphasise Australia’s sound fiscal outlook at a time when many of the

major advanced economies are continuing to experience significant deficits.

The Government expects an underlying cash surplus of $6.2billion in 2004-05,

an improvement of $900 million since PEFO and $3.8billion since the 2004-05

Budget. Despite the slight downward revision to real economic growth, taxation

receipts remain strong due to high export prices, strong company profits and

strong employment.

Since PEFO, stronger employment growth and stronger company profits along with

reduced expenditure arising from revised economic and other forecasts, more

than offset the increased cash expenditure in 2004-05 relating to the Government’s

election commitments and other policy decisions. Major policy decisions include

raising the Medicare Rebate, increasing investment in school infrastructure

and increasing assistance to senior Australians.

With the Budget remaining in cash surplus, net debt is expected to continue

to fall in 2004-05 to around $19.7billion mainly as a result of the higher

than anticipated final budget outcome for 2003-04 and an upward revision to

the projected surplus in 2004-05. This means a reduction in net debt of $76

billion since the election of the Coalition Government in 1996.

CANBERRA

21 December 2004