NO.112

2005-06 MID-YEAR ECONOMIC AND FISCAL OUTLOOK

The 2005-06 Mid-Year Economic and Fiscal Outlook (MYEFO) released today shows

that the Australian economy remains in a strong position.

The Australian economy is expected to grow solidly in 2005-06 and 2006-07.

The forecast for GDP growth in 2005 06 is unchanged from Budget, notwithstanding

the September quarter National Accounts. Strong fiscal outcomes are forecast

and projected across the forward estimates.

Employment growth is expected to ease over 2005-06 and 2006 07, although remain

strong enough to maintain the unemployment rate around its current level. Inflation

is expected to rise slightly in 2005-06, to 3 per cent which is higher than

forecast at Budget, reflecting increases in petrol prices, before easing in

2006 07. High commodity prices and the associated boom in resources activity

are providing substantial impetus to the Australian economy, although there

are risks around future developments in commodity prices.

The fiscal outlook remains strong – the underlying cash surplus for 2005-06

is expected to be higher than at the 2005-06 Budget – and surpluses are

forecast over the forward years.

The Government expects an underlying cash surplus of $11.5 billion in 2005-06,

an improvement of $2.5 billion since the 2005-06 Budget. This largely reflects

an increase in estimated cash receipts of $4.2 billion (including $1 billion

in dividends and interest, and $2.7 billion in tax receipts) partially offset

by an increase in cash payments of $1.7 billion.

The underlying cash surpluses projected for the future years emphasise Australia’s

sound fiscal outlook at the time when many of the major advanced economies are

continuing to experience significant deficits.

The increase in estimated cash receipts for revenue reflects stronger corporate

profits last year affecting this year’s company tax receipts, and strong

employment growth which has lifted personal withholding receipts.

The increase in estimated cash payments largely reflects policy measures announced

since budget, including additional drought relief, improved access to communications

infrastructure in rural and regional Australia, and a structural adjustment

package for the Australian fishing industry to help secure fish stocks.

It is expected that the Commonwealth will eliminate net debt by the end of

2005-06, after net debt peaked around $96 billion when the Coalition came into

government in 1996. For the first time, Australian Government net worth is projected

to be positive by 2008-09.

MELBOURNE

15 December 2005