The transition to non-resource drivers of growth is likely to be slower than previously forecasted. As such employment growth is expected to remain subdued and the Australian economy will lose out on collection of tax receipts.
Economic outlook
Since the 2013 Pre-Election Economic and Fiscal Outlook (PEFO) the Budget deficit is now expected to total $123 billion over the forward estimates. A $47 billion deficit is expected in 2013-14, which is 3% of Gross Domestic Product (GDP).
The Government is committed to taking hard decisions to "live within its means".
Australia is still transitioning from resource-investment led growth to broader sources of growth. However, with the release of the Mid-Year Economic and Fiscal Outlook (MYEFO), the Government is now expecting this transition to occur slower than previously forecasted. As a result of the transition, real GDP is expected to grow slower at a rate of 2.5% in 2014-15 compared to the announced 3% in the 2013 PEFO. Nominal GDP has also been revised downwards significantly due to the softer domestic prices and wages forecasted.
The unemployment rate has increased from the previous expected rate from 6 to 6.25% by mid-2015. The unemployment rate is expected to maintain at that rate for the 2014-15 period. Employment growth rate is expected to be maintained at 1.5% over the next four years, picking up from 0.75% in the current year.
Tax Receipts
Tax receipts have been revised down by more than $37 billion over the forward estimate. The weaker than expected real GDP growth, together with the softer outlook for wages and domestic price, has contributed to the significantly lower nominal GDP.
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