2007/08 Federal Budget: 2007/08 Federal Budget Presentation for National Tourism Alliance Sponsored by Economic Analysis of 2007/08 Federal Budget: What does the Budget mean for Australia, the tourism industry and you? Chris Murphy, Econtech


Outline: Outline The Budget Australian economy You Tourism industry


The Budget:Forecasts for 2007/08: The Budget: Forecasts for 2007/08 Budget Econtech prediction GDP 3 ¾ 3 ½ Household consumption 3 ½ 3 ½ Business investment 7 ½ 5 ½ Exports 5 8 Inflation (a) 2 ¾ 2 ¾ Current account (b) 6 6 ½ through the year % of GDP


The Budget:Fiscal and cash balance ($bn): The Budget: Fiscal and cash balance ($bn) 07/08 08/09 1. Fiscal balance starting point 27.7 33.0 2. Policy measures (budget and prior) – 17.7 – 21.1 3. Fiscal balance end point 10.0 11.9 4. Cash balance 10.6 12.7


The Budget:Major policy measures ($bn): The Budget: Major policy measures ($bn) 07/08 08/09 up to MYEFO – 5.4 – 4.7 personal income tax cuts – 5.3 – 8.4 other new policy – 7.0 – 8.0 Impact on balance – 17.7 – 21.1


The Budget:Other New Policy ($bn): The Budget: Other New Policy ($bn) Other new policy 7.0 in 07/08 and 8.0 in 08/09 includes the following. Defence 1.7 in 07/08 and 1.8 in 08/09 Super Hornet aircraft; commitments in Iraq & Afghanistan Education 0.9 in 07/08 and 1.1 in 08/09 Realising Our Potential package (0.5 in 07/08) Foreign Affairs & Trade 0.5 in 07/08 and 0.5 in 08/09 Australia’s Official Development (0.5 in 07/08)


The Budget:How Big a Fiscal Stimulus? ($bn): The Budget: How Big a Fiscal Stimulus? ($bn) Fiscal Balance to fall by 1.9 in 07/08 – suggests small stimulus. But policy measures to reduce budget balance by 17.7 in 07/08 – suggests large stimulus Truth is somewhere in between: Taxpayers with mortgages may save their tax cuts through higher repayments Largest spending measures are focussed offshore But understandably lower income earners may spend their gains from tax cuts and improved child care funding Economic modelling will tell us more.


Outline: Outline The Budget Australian economy You Tourism industry


Australian economy:Budget and labour market issues: Australian economy: Budget and labour market issues What was the economic outlook before the Budget? How does the Budget change this outlook? How would it change further if the labour market performed less well than it has been? Address these questions with three scenarios for the Australian economy. Generated using Econtech’s MM2 model.


Australian economy:Three scenarios: Australian economy: Three scenarios Before Budget: before allowing for the Budget Budget: allows for the Budget, including the stimulus from its tax cuts and spending increases Worse LM: allows for the Budget and also assumes sustainable unemployment rate rises by 5% to 6%


Australian economy:GDP growth: Australian economy: GDP growth


Australian economy:CPI inflation: Australian economy: CPI inflation


Australian economy: Unemployment rate: Australian economy: Unemployment rate


Australian economy:90-day bill rate: Australian economy: 90-day bill rate


Australian economy:Three scenarios: Australian economy: Three scenarios The Budget stimulus should lift economic growth above 3% in 2007/08. Beyond the Budget, no further fiscal stimulus in this election year is warranted for 07/08 and 08/09, to avoid over-heating the economy and putting pressure on inflation and interest rates. A bigger threat to the economy would occur if the labour market performed less well due to less flexible institutional settings.


Outline: Outline The Budget Australian economy You Tourism industry


You:Personal income tax changes: You: Personal income tax changes analysed using Econtech’s Personal Income Tax Model (PITM), updated for 2004/05 ATO Taxation Statistics released on 4 May 2007 cuts cost $32.2 bn to 2010/11 [Budget says $31.5 bn] cuts at lower income end of tax scale from 2007/08 and upper end of tax scale from 2008/09


You:Personal income tax changes: You: Personal income tax changes Lower end from 2007/08 [$28.3 bn to 2010/11]: Low Income Tax Offset (LITO) raised from $600 to $750 Threshold for 30% rate raised from $25,000 to $30,000 Upper end from 2008/09 [$3.9 bn to 2010/11]: Threshold for top rate raised from $150,000 to $180,000 Threshold for 2nd top rate raised from $75,000 to $80,000 This continues last year’s pattern of focussing tax cuts at the ends of the income scale.


You:Penetration of higher marginal rates: You: Penetration of higher marginal rates


You:Tax share vs income in 05/06 Budget: You: Tax share vs income in 05/06 Budget


You: Tax share vs income in 06/07 Budget: You: Tax share vs income in 06/07 Budget


You: Tax share vs income in 07/08 Budget: You: Tax share vs income in 07/08 Budget


You:Assessment of income tax changes: You: Assessment of income tax changes This assessment takes into account the tax cuts in this year’s Budget and last year’s Budget. Adjustments to the upper tax brackets have reduced the proportion of taxpayers on the top two MTRs. The jump in the low income tax offset from $235 to $750 has delivered large tax cuts for lower income earners. So the tax cuts have been deepest for lower and upper income earners. These groups face the highest MTRs, so targetting the tax cuts on them gives a bigger boost to economic incentives.


Outline: Outline The Budget Australian economy You Tourism industry


Tourism industry:Accommodation, cafes etc: Tourism industry: Accommodation, cafes etc


Tourism industry:Transport: Tourism industry: Transport


Tourism industry:Retail Trade: Tourism industry: Retail Trade


Tourism industry:Comparative Outlook: Tourism industry: Comparative Outlook average annual growth for the next 3 years compared with the last 3 years also compared with the economy-wide growth rate for next three years of 3%


Tourism industry:Goods Trading industries: Tourism industry: Goods Trading industries


Tourism industry:Tourism-related Industries: Tourism industry: Tourism-related Industries


Tourism industry: Background to TFC Outlook : Tourism industry: Background to TFC Outlook Higher commodity prices are holding back the tourism industry: higher oil prices mean higher costs for transport fuels; and higher minerals prices mean a higher Australian dollar, because we are minerals exporters. So last year we worried that tourism may be weaker than suggested by the TFC forecasts. Unfortunately, this turned out to be true. It may be true again in 2007/08.


Tourism industry:TFC Forecasts of Movements (m pers.): Tourism industry: TFC Forecasts of Movements (m pers.)


Tourism industry:TFC Forecasts of Value ($bn, real): Tourism industry: TFC Forecasts of Value ($bn, real)


Tourism industry:TFC Inbound and Domestic (real spend): Tourism industry: TFC Inbound and Domestic (real spend)


Tourism industry:White Paper Spending: Tourism industry: White Paper Spending The Tourism White Paper (TWP) was released November 2003. The TWP initiatives were designed to ensure a more sustainable Tourism Industry through: structural reform, marketing and capacity building initiatives These initiatives were funded by a $235 million package spread over four years to 2007/08. The Budget extends annual funding for the tourism industry at the White Paper levels to 2010/11, costing $193.3 million.


Main messages: Main messages Australian economic outlook: growth firm in 07/08 headline inflation under 2% in 06/07, but near 3% in 07/08 cash rate on hold at 6¼% ­ with no further fiscal stimulus maintaining a flexible labour market important for outlook You and the personal income tax cut: budget surplus still strong; tax cuts targetting lower and upper income earners who face higher effective MTRs Tourism: High oil prices and Australian dollar are challenges White Paper-level funding secured to 2010/11