Budget 2015: An idiot's guide

Thursday, 21 May 2015

Surplus or deficit?

A surplus or deficit describes whether the Government spent more or less than it received in revenue (not counting any gains or losses on investments). If Government spending is greater than revenue, it records a deficit, if revenue is greater than spending, it records a surplus.

Despite forecasting a small surplus last year, the Government returned a deficit of $684 million in the past 12 months.The official name for this measure is OBEGAL which stands for operating balance before gains and losses.

Government spending

Increases in total Government spending have been minimal since the 2012 Budget as the Government chased a surplus. This year, an extra $1 billion will be spent, and that will increase to an extra $2.5 billion in 2017.

Debt

When the Government runs at a deficit, one way it funds spending is to borrow money, which increases the levels of Government debt. Net core crown debt is forecast to be $61.7 billion by June 30, an increase of $1.7 billion from a year ago.

Treasury forecasts predict debt will continue to rise until 2018. After that, the Government hopes to be able to start reducing its debt.

Debt to GDP

Another way to look at debt is to compare it with the total economic output of the country (GDP). This takes into account rising prices and the economic performance of the country.

By this measure, things look slightly better. If Treasury forecasts are correct, the debt-to-GDP ratio will peak at 26.3 per cent next year and start to fall thereafter.

A key Government target is to reduce the debt to GDP ratio to 20 per cent. Currently, it is 25.7 per cent. Treasury thinks it will fall to 22.9 per cent by 2019.

Economic growth

Underpinning the plan to return to surplus and reduce debt is relatively strong economic growth in recent years.

Treasury thinks growth will stay close to current levels - about three per cent annually, for the next three years.