Download Department of Resources, Energy and Tourism Budget Statements

2011-12 Budget
Budget Seminar: ‘Understanding the Budget’
Presented by:
Garth Day
Scott Kompo-Harms
Richard Webb
Parliament of Australia
Department of Parliamentary Services
The State of the Economy
o Lower real GDP growth estimates
o Natural disasters
o Patchwork economy
o Higher inflation
o Food and petrol
See Budget Paper 1, Statement 1, Table 1 for: real GDP growth and inflation forecasts
Parliament of Australia
Department of Parliamentary Services
Exports by destination, % of total
30
30
20
20
10
10
0
0
2000
2001
2002
2003
Japan
2004
2005
2006
Korea, Republic of
Parliament of Australia
Department of Parliamentary Services
2007
2008
2009
China
2010
Where to look for information?
o The Budget Speech
o The Budget Overview
o The Budget Papers
o
o
o
o
BP1:
BP2:
BP3:
BP4:
Budget Strategy and Outlook
Budget Measures
Australia’s Federal Relations
Agency Resourcing
o Portfolio Budget Statements
o Main source of information on proposed agency funding and activities
Parliament of Australia
Department of Parliamentary Services
Budget Paper No. 1
o BP1 – Budget Strategy and Outlook
o
o
o
o
o
o
o
o
o
o
S1: Budget Overview
S2: Economic Outlook
S3: Fiscal Strategy and Outlook
S4: Special Topic
S5: Revenue
S6: Expenses and Net Capital Investment
S7: Assets and Liability Management
S8: Statement of Risks
S9: Budget Financial Statements
S10: Historical Australian Government Data
Parliament of Australia
Department of Parliamentary Services
Budget Papers
o BP2: Budget Measures
o Policy decisions in the Budget and since MYEFO
o Three sections: revenue, expenses and capital
o BP3: Australia’s Federal Relations
o Payments for specific purposes, general revenue assistance, debt
transactions, consolidated non-financial public sector and
accountabilities under the Federal Financial Relations Framework.
o BP4: Agency Resourcing
o Annual appropriations, Special appropriations and Special accounts
Parliament of Australia
Department of Parliamentary Services
Budget Balance Concepts
o The headline ‘cash’ budget balance
o Total receipts - total payments.
o Call on financial markets of government activity
o The underlying ‘cash’ budget balance
o Removes net cash flow of investments in financial assets (e.g.
Telstra sale) and Future Fund earnings
o Measure of public saving (surplus), dis-saving (deficit)
o The fiscal budget balance
o Accrual counterpart to underlying cash balance
o Captures long-term effect of current policy decisions
Parliament of Australia
Department of Parliamentary Services
The Budget Aggregates
See Budget Paper 1, Statement 1, Table 2
- cash terms: receipts and payments
- accrual terms: revenue and expenses
Parliament of Australia
Department of Parliamentary Services
Cash and Accrual Accounting
o Gross debt
o Total Liabilities
o Net debt
o Deposits held, government securities, loans and other borrowing
minus cash and deposits, advances paid, and investments, loans
and placements. Peaked at -3.8% in 2007-08
o i.e. Working capital: current assets minus current liabilities
o Net worth
o Total assets - total liabilities. Peaked at 6% of GDP in 2007-08
o Net financial worth (used in fiscal strategy)
o Financial assets – liabilities. Peaked at -1.5% of GDP in 2007-08
-
See BP1 Statement 9: Budget Financial Statement
Parliament of Australia
Department of Parliamentary Services
Structural and Cyclical Factors
o The structural component of the budget is driven by
policy decisions (termed discretionary fiscal policy).
o Budget Paper 2 – Budget Measures:
o e.g. CPRS deferral, Flood Levy, MRRT
o The cyclical component of the budget is driven by
fluctuations in economic activity impacting:
o Individuals income tax
o Company tax
o Indirect tax
o Social security & welfare payments
Parliament of Australia
Department of Parliamentary Services
Structural Factors
Budget Paper 2: Budget Measures
Parliament of Australia
Department of Parliamentary Services
Budget Forecasts of Company Tax
100
2008-09
2009-10
2010-11 (MYEFO)
80
60
40
20
0
2009-10
2010-11
Parliament of Australia
Department of Parliamentary Services
2011-12
The Budget & Real GDP Growth
6.0
4.0
2.0
0.0
-2.0
-4.0
Underlying Cash Balance
Real GDP Growth
Parliament of Australia
Department of Parliamentary Services
2012-13(p)
2010-11(e)
2008-09
2006-07
2004-05
2002-03
2000-01
1998-99
1996-97
1994-95
1992-93
1990-91
1988-89
1986-87
1984-85
1982-83
1980-81
-6.0
The Budget & Interest Payments
4.0
2.0
0.0
-2.0
Parliament of Australia
Department of Parliamentary Services
2012-13(p)
2010-11(e)
2008-09
2006-07
2004-05
2000-01
1998-99
Primary Budget Balance
1996-97
1994-95
1992-93
1990-91
1988-89
1986-87
1982-83
1980-81
-6.0
1984-85
Net Interest Payments
Underlying Cash Balance
2002-03
-4.0
The Fiscal Strategy
o
The 2008-09 budget formally introduced the
Government’s fiscal strategy:
1. Achieving budget surpluses, on average, over the
economic cycle;
2. Keeping taxation as a share of GDP, on average, below
the level for 2007-08;
o
Taxation receipts less than 23.6% of GDP, on average
3. Improving the Government’s net financial worth over
the medium term.
o
cyclically-adjusted budget surpluses, accrual basis
Parliament of Australia
Department of Parliamentary Services
The Fiscal Strategy – Part II
1. Allow cyclical variation in the budget, temporary
targeted stimulus (discretionary policy decisions) and
New Policy Proposals (NPPs) to be offset.
2. Allow tax receipts to recover naturally and hold real
growth in spending (payments) to 2% p.a. until the
budget returns to surplus.
3. Then, maintain growth in spending at 2% p.a., on
average, until surpluses are at least 1 per cent of GDP.
Parliament of Australia
Department of Parliamentary Services
Fiscal Challenges & Opportunities
o The 2012-13 surplus is a first step to achieving the
Fiscal Strategy, and structural surpluses, on average.
o Receipts
o If tax receipts average 23.6% of GDP p.a., consistent with the Fiscal
Strategy, $150 billion of additional revenue may be generated,
more than offsetting accumulated deficits of $129.2 billion
o Tax policy: maintain incentives to work and invest
o Payments
o If real payments grew, on average, by 2 per cent p.a., consistent
with the Fiscal Strategy, then an additional $74.6 billion of
expenditure may be allocated
o Spending policy: well targeted, value for money and social return
Parliament of Australia
Department of Parliamentary Services
Structural Budget Estimates
Source: 2009-10 Budget Paper No.1 p4-17, updated by Treasury (2010).
Parliament of Australia
Department of Parliamentary Services
Scott Kompo-Harms
o The Budget and macroeconomic policy
o Monetary policy (brief description only)
o Fiscal policy (main topic of interest)
o Instruments
o Effects
o Economic Forecasting
o Background
o Process
o Risk v uncertainty
Parliament of Australia
Department of Parliamentary Services
The Budget and macroeconomic
policy
o Two main macroeconomic policy ‘levers’
o Monetary policy – RBA’s inflation targeting regime
o Inflation target range: 2-3 per cent per annum
o RBA varies their cash rate target in response to actual v target
inflation rates
o RBA will look through ‘volatility’ – ‘headline’ vs ‘underlying’
inflation
o Fiscal policy – changes in government’s budget settings
o Main topic of discussion
Parliament of Australia
Department of Parliamentary Services
Monetary policy
o In Australia, the RBA has a ‘cash rate target’
o Cash rate is the interest rate charged on overnight loans between
financial institutions – this varies with exchange settlement (ES)
balances. ES balances are funds held with the RBA to settle
obligations daily. The target is announced after each RBA Board
meeting.
o The next day, the RBA undertakes ‘open market operations’ – purchase
and sale of securities such as government bonds – in order to keep the
actual cash rate as close as possible to the target. This enables the
RBA to have some influence over the levels of ES balances, which
thereby affects the interest rate charged for overnight loans between
financial institutions
Parliament of Australia
Department of Parliamentary Services
Monetary policy
o ‘Conventional’ monetary policy...
o Many different interest rates in the economy – lending over varying
time periods (term structure) and for different purposes
o Cash rate is a very important (short-term) one that affects all others to
some degree.
o By varying the cash rate, the RBA varies the whole structure of interest
rates in the economy – thereby exerting an indirect influence on
borrowing and saving. Not an exact science!
o There are also so-called ‘unconventional’ monetary policy methods –
as this is a seminar on the budget/fiscal policy these need not
concern us here.
Parliament of Australia
Department of Parliamentary Services
Fiscal Policy
o Government Budget settings – various instruments available
o Digression - What is ‘government’?
o Total public sector is comprised of:
o General Government Sector (GGS) – this is the most commonly
discussed sector
o Public Non-Financial Corporations (PNFCs)
o Public Financial Corporations (PFCs)
o GGS + PNFCs sometimes referred to as ‘Non-Financial Public Sector’ or
NFPS – Cash flow/operating statements and balance sheets for GGS,
PNFCs and NFPS
Parliament of Australia
Department of Parliamentary Services
Fiscal Policy
Parliament of Australia
Department of Parliamentary Services
Fiscal Policy – Instruments
o Revenue measures (see BP#1, Statement 5)
1.
2.
3.
Introducing, removing or altering various taxes
‘Tax expenditures’ – summary only provided in the Budget – Tax
Expenditures Statement (released in January of the next year)
Non-tax revenue changes
o Various types of taxes
o Discretionary (policy changes) vs cyclical (also referred to as
‘automatic stabilisers’)
o Some revenue measures are designed with more than just
macroeconomic goals in mind –designed to have an impact
in some way on behaviour
Parliament of Australia
Department of Parliamentary Services
1971-72
1972-73
1973-74
1974-75
1975-76
1976-77
1977-78
1978-79
1979-80
1980-81
1981-82
1982-83
1983-84
1984-85
1985-86
1986-87
1987-88
1988-89
1989-90
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11(e)
2011-12(e)
2012-13(p)
2013-14(p)
Fiscal Policy – Receipts
Nominal GDP and tax receipts growth (annual %age changes)
40
Forecasts/
Projections
30
20
10
0
-10
-20
Nominal GDP
Parliament of Australia
Department of Parliamentary Services
Tax receipts
Fiscal Policy – Instruments
o Expenditure measures
(see BP#1, Statement 6)
o Various types of government expenditure – can be broadly categorised
in different ways, depending on the context:
1.
2.
3.
By function – education, health, defence, etc.
Discretionary vs cyclical
Administered vs departmental expenses – Richard Webb will have more to say
about this distinction
Parliament of Australia
Department of Parliamentary Services
Fiscal Policy – Instruments
o
Other measures
o
o
Contingent liabilities – e.g. government guarantees of deposits and
wholesale funding – Some limited information available in BP#1,
Statement 8 – Statement of Risks
Use of the Government Balance sheet - purchase or sale of financial
and non-financial assets – Some limited information on the second is
available in BP#1, Statement 9 – Budget Financial Statements
Parliament of Australia
Department of Parliamentary Services
Fiscal policy - Effects
o Concept of multipliers
o Many considerations will impact on the effects of a particular action. Here
are but a few:
o
o
o
o
o
o
Time frame under consideration – SR v LR
Exchange rate regime in place- fixed or floating
Openness to trade – exports + imports as % of GDP
Individual national action or synchronised global action
Type of action taken:
1. Expenditure measures – ‘Productive’ vs ‘unproductive’ government spending vs
transfer payments
2. Revenue measures – Direct vs indirect taxation, differences in treatment across
sectors, taxing wages vs capital vs natural resources
Don’t forget automatic stabilisers...
Parliament of Australia
Department of Parliamentary Services
Economic Forecasting –
Background
o Macroeconomic forecasts form the basis around which the
overall Budget is built
o Tax revenues/receipts are closely linked to nominal GDP
o Some significant expenses/payments are closely linked to real GDP
and employment – especially unemployment benefits
o Prices, wages, interest rates and exchange rates all affect various
spending components
o Economists cannot predict the future, but the government needs
something upon which to estimate the evolution of budget variables
into the future
Parliament of Australia
Department of Parliamentary Services
Economic Forecasting –
Background
o Some common terminology:
o Each budget is done on a financial year basis and contains estimates of
economic and fiscal variables for the current year, the budget year, the next
year and projections for the next two years
o ‘Forward estimates’ period includes the budget year and three years ahead
o Two major forecasting rounds – Budget (May) and MYEFO (around
November)
o Domestic Economy forecasts are presented in detail in BP #1
Statement 2, Economic Outlook
Parliament of Australia
Department of Parliamentary Services
Economic Forecasting - Process
1.
2.
3.
4.
Business liaison
Release of latest National Accounts data
International Economy Division – world outlook
Domestic Economy Division – econometric modelling (single
equation sectoral and economy-wide), leading indicators,
other domestic data/forecasts
5. Quality Assurance – Internal (senior management) and
external (Joint Economic Forecasting Group)
Parliament of Australia
Department of Parliamentary Services
Economic Forecasting –
Budget cycle
o Several documents released over the full Budget cycle
1.
2.
3.
Budget papers #1-4 and Portfolio Budget Statements (May)
Final Budget Outcome (end-September)
MYEFO (November)
o Charter of Budget Honesty requires a PEFO to be released
prior to elections
o Additional Budget documents can be released at the
discretion of the Government (e.g. UEFO in Feb 2009; ES in Jul
2010)
o Department of Finance and Deregulation also releases
monthly budget statements
Parliament of Australia
Department of Parliamentary Services
Economic Forecasting – risk vs
uncertainty
o
o
o
o
o
Forecasters necessarily have to deal with risk and uncertainty –
difference between the two is whether the forecaster can identify the
underlying probabilities of known possible set of outcomes or not.
The former can be quantified whilst the second cannot
Dealing with both risk and uncertainty involves the use of ‘sensitivity
analysis’
For this reason, budget forecasts are unlikely to come to fruition exactly
as predicted
REMEMBER – Budget is merely a statement of the Government’s
expectations NOT reality!
Parliament of Australia
Department of Parliamentary Services
Economic Forecasting – sensitivity
analysis
o
o
Sensitivity analysis is the use of alternative assumptions to establish how
sensitive the predicted outcomes are to changes in assumptions.
Scenarios encompass the budget year and the next year
BP#1 (Statement 3 Appendix A) usually contains two scenarios:
1.
2.
o
o
A permanent fall in non-rural commodity prices equivalent to a fall in
nominal GDP of 1 per cent
A permanent rise in real GDP of 1 per cent, arising from an equal ongoing
rise in both labour productivity and labour force participation
They show impacts on key economic variables and fiscal outcomes –
deviation from baseline forecasts
They are ‘partial’ analyses rather than ‘general’, i.e. They do not include
‘feedbacks’, such as exchange rate movements or likely monetary/fiscal
policy responses – see next slides
Parliament of Australia
Department of Parliamentary Services
Economic Forecasting – scenario 1
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Department of Parliamentary Services
Economic Forecasting – scenario 2
Parliament of Australia
Department of Parliamentary Services
Economic Forecasting – feedbacks
and other factors
o In scenario 1, we would expect the following:
o The exchange rate would fall, dampening the economic and fiscal
effects, and
o A temporary shock would have a more subdued impact than a
permanent fall
o In scenario 2, we would expect the following:
o As above, a temporary shock would have a more subdued impact than
a permanent fall, and
o A larger relative contribution to real GDP increases from productivity
rather than participation would mean a higher increase in wages and
lower gain in employment growth. The reverse would also apply.
Parliament of Australia
Department of Parliamentary Services
Economic Forecasting – sensitivity
analysis
o
A couple of things to note:
o
o
o
Scenarios are broadly symmetric – that is, they apply (roughly) to
moves in either direction
However- the effects are not likely to be linear. In other words , in
the event of large changes (for example, a 5 per cent fall in nominal
GDP – a five-fold increase in the first illustrative scenario), we should
not expect that the predicted reactions will also be five times as
large, even in the absence of any ‘feedbacks’.
In the event of large shocks, we should not expect the ceteris
paribus assumption to hold – all else is rarely equal...
Parliament of Australia
Department of Parliamentary Services
Final comments
o Cannot emphasise enough – Budget forecasts are not ‘reality’ and
economic forecasters are not infallible
o There is much judgement applied in economic forecasting and policy
analysis – assumptions have to be made about the future and these can
and frequently do turn out to be wrong
o Quite often (but not always!) discussion about ‘black holes’ in budgets or
‘flawed’ costings revolves around differences of opinion about
assumptions – the important thing is to make sure appropriate analytical
techniques and sound logic are applied. It is perfectly valid to apply
different judgements
o Criticisms of ‘inaccuracies’ (which are usually identified only with the
benefit of hindsight) are valid only if an unsuitable analytical technique
has been applied, logic is flawed or incomplete/incorrect data are used ex
ante
Parliament of Australia
Department of Parliamentary Services
Richard Webb
UNDERSTANDING:
PORTFOLIO BUDGET STATEMENTS (PBS)
Parliament of Australia
Department of Parliamentary Services
Department of Resources, Energy and
Tourism Budget Statements
Parliament of Australia
Department of Parliamentary Services
Program 2 Expenses
2009-10
Revised budget
('000)
2010-11
Budget
2011-12
Forward year 1
2012-13
Forward year 2
2013-14
Forward year 3
Annual administered expenses:
154.556
183,300
-
-
-
1,047
7,298
1,048
-
-
100,000
100,000
100,000
100,000
-
6,483
4,443
3,097
-
-
39
40
25
16
-
1,000
1,000
1.000
1,000
1.000
- Carbon Capture and Storage Flagships
135,000
82,798
209,599
208,160
98,731
- National Low Emissions Coal Initiative
87,621
102,850
74,900
34,800
17,630
29.992
26,923
27,594
23,669
20,841
515,738
508,652
417,263
367,645
138,202
- Ethanol Production Subsidy
- Establishment of the National Offshore
Petroleum Regulatory Authority
- Global Carbon Capture and Storage
Institute
-Radioactive Waste Management
-Rum Jungle
-Syntroleum Depreciation
Special account expenses:
Clean Energy Initiative Special Account: 1
Annual departmental expenses:
- Program support
Total program expenses
1. The expenses from this special account are funded by administered appropriations from RET.
Parliament of Australia
Department of Parliamentary Services
Department of Resources, Energy and
Tourism Resource Statement –
Budget Estimates for 2010-11 as at Budget
May 2010
Parliament of Australia
Department of Parliamentary Services
Table 1.1: Department of Resources, Energy and Tourism Resource Statement - Budget Estimates for 2010-11 as
at Budget May 2010
Estimate of prior
4 year amounts
available in
2010-11
$'000
Proposed at Budget =
Total
Actual available
appropriation
2010-11
$'000
2010-11
$'000
2009-10
$'000
Ordinary annual services 1
Departmental appropriation
Prior year departmental appropriation 2
Departmental appropriation
-
3.472
3,472
-
101,209
83,062
19.957
81,252
s31 Relevant agency receipts 3
-
-
Expenses not requiring appropriation
-
210
210
-
19,957
84,934
104,891
83,062
Outcome 1
800.051
800,051
675,530
Payments to CAC Act bodies
122.920
122,920
141,622
922,971
922,971
817,152
19,957
1,007,905
1,027,862
900,214
Equity Injections
-
928
928
-
Previous years outputs
-
-
-
2.330
-
928
928
2,330
-
13,181
13181
-
-
13,181
13,181
2,330
-
14,109
14,109
2,330
19,957
1,022,014
1,041,971
902,544
Total
Administered expenses
Total
Total ordinary annual services
A
Other services"
Departmental non-operating
Total
Administered non-operating
Payments to CAC Act bodies - non-operating
Total
Total other services
B
Total available annual appropriations
Parliament of Australia
Department of Parliamentary Services
Table 1.1: Department of Resources, Energy and Tourism Resource Statement - Budget Estimates for 2010-11
as at Budget May 2010 (continued)
Estimate of prior
4 year amounts
available in
2010-11
$'000
Proposed at Budget
=
Total estimate
Actual available
appropriation
2010-11
$'000
2010-11
S'000
2009-10
S'000
Special appropriations
- Offshore Petroleum and Greenhouse Gas Storage Act 2006 Ashmore and Cartier Islands
-
1,500
1,500
1,500
- Offshore Petroleum and Greenhouse Gas Storage Act 2006 Offshore Petroleum Fees
-
15,000
15,000
20,000
- Offshore Minerals Act 1994 - Offshore Minerals Act (Fees)
-
60
60
60
-
16,560
16,560
21,560
19,957
1,038,574
1,058,531
924,104
63,921
60,322
485,977
485,977
393.347
Appropriation receipts - other agencies 7
3.915
3,915
4,065
Non-appropriation receipts to Special Accounts
8,434
8,434
7,532
63,921
498,326
562,247
465,266
83,878
1,536,900
1,620,778
1,389,370
-
(622,078)
(622,078)
(534.97)
83,878
914,822
998,700
854,401
Total special appropriations
C
Total appropriations excluding Special Accounts
Special Accounts
Opening balance 5
63,921
Appropriation receipts 6
Total Special Account
D
Total resourcing
A+B+C+D
Less appropriations drawn from annual or special appropriations
above and credited to special accounts and/or CAC Act bodies through
annual appropriations
Total net resourcing for RET
Parliament of Australia
Department of Parliamentary Services
FOOTNOTES to TABLE 1.1:
1. Appropriation Bill (No 1) 2010-11
2. Estimated adjusted balance carried from previous year for annual appropriations
3. s31 Relevant Agency receipts - estimate
4. Appropriation Bill (No.2) 2010-11
5. Estimated opening balance for special accounts (less 'Special Public Money' held in accounts like Other Trust Monies
(OTM) and Services for other Government and Non-agency Bodies (SOG) accounts). For further information on special
accounts see Table 3.1.2.
6. Appropriation receipts from RET's annual and special appropriations for 2009-10 included above.
7. Appropriation receipts from other agencies credited to RET's special accounts
Reader note: All figures are GST exclusive.
Parliament of Australia
Department of Parliamentary Services
Thank you for your attendance
Contact Details:
Garth
6277 2464
[email protected]
Scott
6277 2455
[email protected]
Richard
6277 2460
[email protected]
Upcoming Parliamentary Library Publication: The 2011-12 Budget Review
Further information: www.budget.gov.au/
Parliament of Australia
Department of Parliamentary Services