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Staying the course –
strengthening our resilience in
uncertain economic times
25 August 2016
The Hon Scott Morrison MP
Treasurer
Economic growth
Source: ABS Cat. No. 5206.0, National Statistical Agencies, OECD and Thomson Reuters. Note: Top panel is annual average with
2015-16 estimated from quarterly data, bottom panel is through-the-year growth in the latest quarter.
2
Government bond yields and inflation expectations
Market expectations for inflation over a five
year period starting in five years time
10 year government bond yields
11
Per cent
Per cent
11
10
10
9
9
8
8
7
Australia
7
6
6
5
5
4
4
3
United States
2
3
Germany
1
Source: Bloomberg
Per cent
1
Japan
Per cent
(average annual rates from
inflation swaps)
4
United States
Australia
3
3
2
2
Eurozone
1
1
0
0
2
0
-1
Aug-96
4
Japan
-1
-1
0
Aug-01
Aug-06
Aug-11
-1
Aug-16
-2
Aug-10
Aug-12
Aug-14
-2
Aug-16
3
Prices and income
25
Per cent, tty
Per cent, tty
20
Company profits
15
Per cent, tty
10
Per cent, tty
Compensation of employees
8
20-year
average
6
5
0
0
-5
-5
Mar-11
-10
Mar-16
10
8
6
4
2
2
Mar-11
10
12
4
0
Mar-06
15
5
-10
Mar-06
12
20
20-year
average
10
25
0
Mar-16
Source: ABS Cat No. 5206.0 and 6345.0.Note: Profit is the gross operating surplus (GOS) for private non-financial and financial corporations. GOS
only includes the income derived from the production of goods and services and does not include depreciation, foreign exchange or other
revaluation gains and losses.
4
Wages growth – international comparison
Source: OECD Economic Outlook, June 2016.
Note: Five year annual average. Measure used is compensation of employees
5
Mining and non-mining investment
Source: ABS Cat. No. 5204.0 and Treasury.
6
Foreign investment
Source: ABS and FIRB
7
Trade
World merchandise trade volumes
Trade intensity
Source: Bloomberg and World Bank.
Note: Trade intensity is measured as the sum of exports and imports of goods and services measured as a share of GDP.
8
China’s investment and debt
50
Per cent,
tty, ytd
Fixed asset investment
National Debt
Per cent,
tty, ytd
40
50
40
FAI - Private
30
30
Private
20
20
10
10
IMF Estimate of National Debt, 2015
State owned enterprises
0
2006
2008
2010
2012
2014
0
2016
Source: CEIC Data Company Ltd, Bank for International Settlements, IMF. Note: Investment in fixed assets (excluding rural households) refers to the
total workload on construction and purchase for fixed assets during a certain period in the form of currency, as well as the concerning expenses.
9
IMF China scenarios
GDP Growth: IMF Illustrative Scenarios
Credit Ratio: IMF Illustrative Scenarios
(per cent, year-on-year growth)
(per cent of GDP)
Source: IMF Article IV. Note: Non-financial private debt, calculated as total social financing stock adjusted for local government debt swap
minus equity financing and LGFV borrowings.
10
Debt and deficit
3
3
35
2
2
30
1
1
25
Per cent
of GDP
Underlying Cash
Balance
Per cent
of GDP
Per cent
of GDP
Net and gross debt
Per cent
of GDP
35
30
25
Gross
debt
0
0
20
20
-1
-1
15
15
-2
-2
10
10
-3
-3
5
5
-4
0
0
-5
-5
-5
Underlying
cash
balance
Source: Treasury
2019-20
2012-13
2005-06
1998-99
1991-92
1984-85
2019-20
2012-13
2005-06
1998-99
1991-92
1984-85
1977-78
1970-71
-5
1977-78
Net debt
1970-71
-4
11
AAA credit rating
Source: IMF
Note: Gross general government debt includes all levels of government.
12
Changes to forecasts
2015-16
2016-17
13
25
Real and nominal GDP
Per cent, tty
20
Per cent, tty
25
20
Nominal
15
15
10
10
5
5
3.1
2.1
0
0
Real
-5
Mar-1962
Mar-1971
Source: ABS Cat No. 5206.0
Mar-1980
Mar-1989
Mar-1998
Mar-2007
-5
Mar-2016
14
Payments to GDP remain at a high level
27
Per cent of GDP
Per cent of GDP
Payments
27
25
25
23
23
21
21
Receipts
Forward
estimates
19
19
17
17
15
1991-92
1998-99
Source: Treasury
Note: Dotted lines denote 30-year averages
2005-06
2012-13
15
2019-20
15
Expenditure and Revenue Growth
Expenditure growth
Source: Treasury
16
Unlegislated measures
$15 billion in Unlegislated Revenue
Increasing Measures by Type
(as at PEFO 2016)
Nontaxation
receipts
$25 billion in Unlegislated Savings
Measures by Portfolio
(as at PEFO 2016)
Environment
Other
Other
taxes
Finance
Company
tax
Individuals
and other
witholding
Education
and
Training
Excise and
customs
duty
Source: Treasury
Note: Cash basis
Social
Services
Health
17
Top 10 Unlegislated Measures improving the
bottom
line
Expense measures
Revenue measures
Source: Treasury
Note: Cash basis
18
Top 10 Unlegislated Measures negatively impacting
the
bottom
line
Expense measures
Revenue measures
Source: Treasury
Note: Cash basis
19
Possible scenarios
Scenario 1 assumes:
• Currently unlegislated measures supported by the opposition are passed by
Parliament.
• Other unlegislated measures explicitly opposed by the opposition are
abandoned.
Scenario 2 assumes:
• As per Scenario 1, but assumes further downgrades due to economic
parameters.
Scenario 3 assumes:
• As per Scenario 2, but assumes all currently unlegislated measures are
abandoned.
20
Possible scenarios
0.5
Per cent of
GDP
UCB
Per cent of
0.5
GDP
PEFO
0.0
0.0
1,200
$billion
$billion
Gross Debt
1,200
1,100
1,100
Scenario 1
1,000
-0.5
Scenario 3
-0.5
Scenario 2
-1.0
900
900
-1.0
Scenario
2
800
-1.5
1,000
Scenario 3
800
-1.5
700
-2.0
700
Scenario 1
-2.0
600
600
PEFO
-2.5
-2.5
-3.0
-3.0
500
500
400
400
Note: The scenario projections are preliminary and are only broadly indicative of the impact of alternative policy and economic scenarios.
21
Financial Systems - High priority government actions
Consumer outcomes
•
•
•
•
Life insurance remuneration
Professional standards
External Dispute Resolution framework review
Product issuer obligations and intervention power
• Consumer credit protections
• Credit cards
• Whistleblower reforms (Corporations Act)
Innovation
• NISA employee share scheme
• Insolvency reform rules
• Asia Region Funds Passport
• Crowd-sourced equity funding
• Collective investment vehicles (corporate)
• Collective investment vehicles (limited partnership)
Resilience
• Crisis management toolkit
Regulatory Architecture
• Financial Sector Advisory Council
• Review of ASIC enforcement powers
• ASIC industry funding