Statement 3: Fiscal Strategy and Outlook

This statement outlines the fiscal outlook and how the Government has delivered on its fiscal strategy. Temporary deficits are necessary to support growth while the economy is weak. In this Budget, the Government has fully offset all new spending in 2012‑13. This approach is consistent with the Government's medium‑term fiscal strategy of achieving budget surpluses, on average, over the medium term.

An underlying cash deficit of $57.6 billion (4.9 per cent of GDP) is expected in 2009‑10, compared with the February 2009 Updated Economic and Fiscal Outlook (UEFO) estimate of $35.5 billion (2.9 per cent of GDP). The budget deficit is a direct consequence of the global recession, which has had a substantial impact on tax revenues. Since the 2008‑09 Budget, tax receipts have been revised down by around an estimated $210 billion over the forward estimates to 2012‑13. Consistent with the fiscal strategy, the 'automatic stabilisers' have been allowed to flow through to the budget position, supporting economic growth.

The Government has met its commitment to fund new expenditure through a reprioritisation of existing expenditure. New spending has been offset by the final year of the forward estimates. The budget deficit is expected to halve as a share of GDP by the end of the forward estimates, and in the medium term, the underlying cash balance is projected to return to surplus by 2015‑16. This will be achieved through expenditure restraint (holding real spending growth to 2 per cent when the economy recovers and grows above trend) and by allowing receipts to recover naturally with the recovery in the economy. This will ensure that the economic recovery is not jeopardised while at the same time providing a clear path back to surplus.

Australia's budget position remains sound and sustainable. Australia's deficit in 2009‑10 is less than half that of the major advanced economies' collective deficit of 10.4 per cent of GDP and considerably smaller than the 8.8 per cent of GDP collective deficit for advanced economies as a whole.

Net debt will remain low by international standards and is projected to decline to 3.7 per cent of GDP by the end of the next decade.

Appendix A illustrates the sensitivity of the budget estimates to changes in the economic outlook. Statement 4 examines a range of indicators to assess the sustainability of Australia's budget position.

Appendix B outlines the methodology underpinning the medium‑term economic and fiscal projections