BUDGET #2014BudgetBriefing

Transcription

1 2014 BUDGET #2014BudgetBriefing

2 Budget Strategy in Tougher Times John Daley Chief Executive Officer Grattan #2014BudgetBriefing

3 Overview Budgets are under pressure, and it will get worse Commonwealth has had a structural deficit of 2% of GDP for the last 6 years Australian government budgets will get worse, driven by health Both revenue AND expenditure are behind historic averages WA has benefited from revenue windfalls, which it has largely spent Spending growth was driven by health and infrastructure Health spending was driven by servicing, not ageing A large increase in capital spending is now crimping recurrent budgets Budget repair will be difficult The planned slowdown in spending is unprecedented Budget repair requires tough choices State options are particularly unattractive 3

4 Underlying Commonwealth budget deficit Commonwealth budget balance per cent of nominal GDP Terms of trade Cyclical impacts Structural underlying balance Cash balance Note: Cash balance is equal to receipts minus payments, minus Future Fund income, (under 0.25 per cent of GDP) Source: Budget Pressures

5 On current trends, a decade of deficits Potential annual deficit of Australian governments budgets by 2024 (Percent of GDP) 0% -0.5% -0.5% -2% -1.5% -3.5% -0.5% -0.5% -4% -6% Forecast deficit Signature initiatives e.g. NDIS, defence Health trend Welfare response to inequality increase Terms of trade potential fall Deficit 2024 on current trends Grattan Institute, Budget Pressures

6 Underlying revenue and expenses Commonwealth and State expenditures and revenues per cent of GDP 24% C wth Revenue 22% (ex GST) 20% 18% 16% 14% 12% 10% 8% C wth Expenditure State Expenditure (ex tied grants) (inc tied grants) State Revenue (inc GST, ex tied grants) Forecast If ToT falls faster Financial year ended Note: Revenue collected by the Commonwealth and transferred to states is shown as Commonwealth revenue only. Source: Budget Pressures

7 C wth budget repair is primarily bracket creep Commonwealth taxes per cent of GDP 14 Forecast 12 Personal income tax 10 8 Indirect tax 6 4 Corporate taxes Source: Treasury, Budget Paper 1; Grattan Institute analysis 7

8 Many groups contribute to Cwth budget repair Budget measures, impact on budget Annual impact, 2017$b Patients Overseas development Fuel 1.1 High tax 1.2 Un- earners 1.8 Age employed Pensioners 1.0 Families Students Source: Treasury, Budget Paper 2; Grattan Institute analysis 0.4 Other gov ts 3.1 Misc Election promises (defence pensions, Direct Action) New infrastructure 10.5 Net impact budget balance

9 Overview Budgets are under pressure, and it will get worse Commonwealth has had a structural deficit of 2% of GDP for the last 6 years Australian government budgets will get worse, driven by health Both revenue AND expenditure are behind historic averages WA has spent most of the mining windfall Spending growth was driven by health and infrastructure Health spending was driven by servicing, not ageing A large increase in capital spending is now crimping recurrent budgets Budget repair will be difficult The planned slowdown in spending is unprecedented Budget repair requires tough choices State options are particularly unattractive 9

10 WA has spent most of the mining windfall WA government revenue and expenditure $b, nominal Gallop-Carpenter 30 government Barnett government Estimates Expenditure Mining revenue GST Other revenue FY ending Note: Mining revenue includes royalties and North West Shelf payments from Commonwealth. All figures are General Government. Sources: WA State Budget Paper 3 (various years); WA Overview of State Taxes and Royalties ; ABS Cat No Table

11 WA collects and spends - more Large State revenue per capita Large State spending per capita $ 000 $ NSW VIC QLD WA Tied grants Other untied GST Royalties Taxation Other ownsource NSW VIC QLD WA Other Debt mgt Industry Soc. services Crim. justice Govt & econ Transport & planning Education & research Health 11

12 Overview Budgets are under pressure, and it will get worse Commonwealth has had a structural deficit of 2% of GDP for the last 6 years Australian government budgets will get worse, driven by health Both revenue AND expenditure are behind historic averages WA has spent most of the mining windfall Spending growth was driven by health and infrastructure Health spending was driven by servicing, not ageing A large increase in capital spending is now crimping recurrent budgets Budget repair will be difficult The planned slowdown in spending is unprecedented Budget repair requires tough choices State options are particularly unattractive 12

13 Nationally, health and infrastructure grew Change in Australian governments recurrent expenditure, 2003 to 2014 Real change, $2013 bn Real growth 50 Growth if revenue a 40 constant % of GDP Health Edu & Transport, Industry research planning Welfare Other Social services Debt mgt Defence Crim justice Note: Other comprises all expenditure not elsewhere included. Social services comprises ageing and aged care services, disability services, and community services. Govt & econ comprises government operations and economy and finance. Source: Balancing Budgets 2014 Supporting Materials Govt & econ 13

14 Health spending is driven by servicing Real increase in expenditure ($2012 billion) Grattan Institute, Budget Pressures More, improved, and new services per person Health inflation >CPI Population ageing Population growth GDP growth 14

15 WA capex has been unusually high Capital expenditure Net acquisition of non-financial assets, $ billions ($2013) 2.5 Cth stimulus package 2.0 Forecast Note: Total net investment in fixed assets (excludes PPP payments) Source: ABS (2013) cat , WA Government Budget Paper 3 (2013) 15

16 Capex has driven increase in debt Net debt and operating balance $ billions ($2013) Net operating balance Net debt Forecast Note: Net operating balances for 2014 are estimates and subsequent years are forecasts Source: ABS (2013) cat , WA Government Budget Paper 3 (2013) 16

17 Recurrent budgets pay for past capex Depreciation and interest expense as a percentage of revenue % of revenue 8 6 Interest Depreciation Forecast Source: ABS (2013) cat 5512, WA State Budget Paper 3 ( ) 17

18 Overview Budgets are under pressure, and it will get worse Commonwealth has had a structural deficit of 2% of GDP for the last 6 years Australian government budgets will get worse, driven by health Both revenue AND expenditure are behind historic averages WA has spent most of the mining windfall Spending growth was driven by health and infrastructure Health spending was driven by servicing, not ageing A large increase in capital spending is now crimping recurrent budgets Budget repair will be difficult The planned slowdown in spending is unprecedented Budget repair requires tough choices State options are particularly unattractive 18

19 WA has not yet cut hard Real expenditure growth by government term, cumulative annual growth, % p.a C th E NSW E Source: Grattan analysis of Commonwealth and state budget papers WA E Victoria E Labour Coalition Forward estimate Qld E

20 Budget repair requires tough choices Budgetary impact of tough budget choices 2013$b per year Age Pension assets test Negative gearing Pharmaceutical spend Pension and super access CGT discount Higher ed subsidies Defence spending Cost effective medicine Super contr concessions Super earn concessions Fuel tax indexation Transport infra costs Industry support School class sizes GST broaden Health rebate Mining royalty CGT owner occ Payroll threshold Fuel tax credit Bracket creep Source: Budget Pressures on Australian governments High risk in execution Collateral impact $11b $24b $12b $14b $19b $40+b Positive Neutral Mild negative Negative Very negative 20

21 Pensions, super and asset tax predominate Budgetary impact of tough budget choices 2013$b per year Age Pension assets test Negative gearing Pharmaceutical spend Pension and super access CGT discount Higher ed subsidies Defence spending Cost effective medicine Super contr concessions Super earn concessions Fuel tax indexation Transport infra costs Industry support School class sizes GST broaden Health rebate Mining royalty CGT owner occ Payroll threshold Fuel tax credit Bracket creep Source: Budget Pressures on Australian governments Pensions & super Assets taxation Other $27b pensions & super $ 7b asset taxation $12b other 21

22 State government choices are limited Budgetary impact of tough budget choices 2013$b per year Age Pension assets test Negative gearing Pharmaceutical spend Pension and super access CGT discount Higher ed subsidies Defence spending Cost effective medicine Super contr concessions Super earn concessions Fuel tax indexation Transport infra costs Industry support School class sizes GST broaden Health rebate Mining royalty CGT owner occ Payroll threshold Fuel tax credit Bracket creep Source: Budget Pressures on Australian governments State government Commonwealth Cooperative 22

23 Advancing Excellence in the Public Sector