Assuming a constant 2 per cent annual rate of inflation, population aging will lead to lower growth in nominal GDP, the broadest single measure of the tax base. Slower nominal GDP growth will reduce the growth rate of government revenues while, at the same time, population aging is expected to put upward pressure on public expenditures, notably for age-related programs such as elderly benefits.
Using the Fall Economic Statement as the starting point, and assuming key current policy parameters remain the same, the federal budgetary balance-to-GDP ratio is expected to decline somewhat during the late s as population aging pressures increase.
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With the subsequent easing of these pressures, the budgetary balance-to-GDP ratio is projected to significantly improve to reach a surplus of 1. This projected budgetary balance path means that the debt-to-GDP ratio remains on a downward track over the whole projection horizon.
However, there are both upside and downside alternative scenarios around the baseline projection. In particular, there is significant uncertainty regarding future economic growth and, therefore, the path of nominal GDP. Changes in economic growth assumptions over the medium term can have large impacts on the budgetary balance and debt-to-GDP profile over an extended projection horizon.
For example, if the Government based current fiscal projections on the average of the top four individual forecasts for nominal GDP growth—which is equivalent to nominal GDP growth being 0. Under this scenario, the debt-to-GDP ratio would decline more rapidly and the federal debt would be eliminated by the end of the projection horizon.
Canada's Demographic Transition
Conversely, basing fiscal projections on the average of the bottom four individual forecasts for nominal GDP growth—which is equivalent to nominal GDP growth being 0. Under this scenario, the debt-to-GDP ratio gradually declines to about It is therefore imperative to continue to grow the economy by investing in people—giving them the skills they need to succeed, and equipping them with the technology and innovations that will help to make Canada more productive and competitive.
While no single initiative can guarantee sustainable growth in our prosperity, the potential payoff from acting now in a broad range of policy areas is substantial, as measures tend to reinforce themselves over time. In particular, continuing to encourage greater workforce participation by people who are traditionally under-represented in the labour market—including women, Indigenous peoples, older workers, newcomers and persons with disabilities—is key to Canada's long-term fiscal and economic performance.
Similarly, initiatives that promote business investment in Canada, such as the Accelerated Investment Incentive, will increase the productivity of Canadian workers and businesses. By investing in more technologically-advanced machinery and more efficient buildings and infrastructure, businesses equip their workers with the latest technologies and state-of-the-art facilities, which, in turn, allow them to improve their business processes and produce more and higher-quality goods and services.
The demographic projections used in this report are based on medium-growth scenario projections produced by Statistics Canada. The demographic assumptions behind these projections are outlined in Population Projections for Canada to , Provinces and Territories to , published in The main assumptions are:. For the purposes of this report, the population projections produced by Statistics Canada have been adjusted to reflect the most recent population estimates.
Over the first six years of the projection — , key economic indicators e. These results are then extended using the Department of Finance Canada long-term projection model.
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In this model, real GDP growth is assumed to depend on labour productivity growth and labour input growth. Labour input growth is determined by age- and gender-specific labour force participation and average hours worked. The unemployment rate over the — period is taken from the private sector forecast, which projects it to stay around its current level over the medium term. Going forward, it is assumed to be somewhat below 6 per cent. Over the medium term — , growth in labour supply is projected to continue to contribute noticeably to overall GDP growth in part due to the positive effect of Canada's continued economic strength, which translates into a slightly falling unemployment rate this contributes positively to labour supply growth.
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However, labour supply growth over the medium term is significantly less than over the — period, reflecting both slower growth in the working-age population as well as the increasing rate of retirement among the baby boom generation. Going forward, working-age population growth is projected to slow further while the negative contribution of labour force participation is projected to gradually moderate. Combined, these factors suggest that the contribution made by labour supply to real GDP growth will decline significantly to an average of 0.
Assuming productivity growth of 1. Using the fiscal projections up to —24 presented in the Fall Economic Statement as the starting point, the fiscal projections contained in this report are obtained through an accounting model in which each revenue and expense category is determined independently and is modelled as a function of the underlying demographic and economic projections, with the relationships defined either by current government policies or assumptions. The principal assumptions underlying the fiscal projections from —25 through —56 are:.
Because long-term projections and the range of possible results are inherently uncertain, the baseline projections presented in this report are not intended to be forecasts. Rather, they provide a plausible baseline that follows from a reasonable set of demographic, economic and fiscal assumptions, and which, as this sensitivity analysis shows, is fairly robust to a number of reasonable changes to individual assumptions.
On the other hand, larger changes to assumptions or a combination of changes to some of these assumptions can result in a large change in the long-term economic and fiscal outlook.
Labour force participation rates are low when individuals are young ages 15 to 24 , reach peak levels between the ages of 25 and 54 and begin to decline starting at age While participation rates of older individuals are expected to continue to increase, they are expected to remain well below rates seen among younger age groups. Solid employment growth is expected to continue. As spare capacity in the labour market continues to be reduced and economic growth strengthens, wage growth is expected to pick up. Significant weather events including drought and floods are weighing on economic growth in The Government is committed to helping individuals and local communities to recover and rebuild following natural disasters and severe drought.
Consumer spending, investment by businesses and continued demand for Australian exports are all expected to contribute to economic growth. Residential construction activity is expected to fall following recent declines in housing prices and building approvals partly in response to a rebalancing of supply and demand. Sustained fiscal discipline will ensure surpluses build over the coming years and exceed 1 per cent of GDP in the medium term. Government spending remains focused on delivering high quality essential services but careful targeting sees payments as a share of GDP returning to below long-run average levels.
In achieving this, the Government's average real spending growth is expected to be the lowest of any Commonwealth government in over 50 years. The Government is also keeping taxes as a share of GDP within the The Government's responsible fiscal management ensures Australia is better equipped to deal with future challenges and to reduce the fiscal burden on future generations.
Reducing debt will ensure that the nation's finances remain sustainable and that we are prepared for future challenges. The Government's ongoing commitment to strong fiscal management will see the Government's financial position substantially improve over the medium term. The Government is focused on reducing net debt as a share of the economy, which is expected to peak in at The Government is also reducing total borrowing gross debt as a share of the economy over time.
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Gross debt peaked in at less than 30 per cent of GDP. Over the medium term, it is projected to fall below the year average to Net financial worth is also projected to improve over time, consistent with the Government's fiscal strategy. The table below shows the main cash and accrual budget aggregates for the Australian Government general government sector over the period from to From this time, the underlying cash balance includes expected net Future Fund earnings.
This table summarises the major savings in the Budget and their impact on the fiscal balance. More comprehensive information is provided in Budget Paper No. All figures are in net fiscal impact terms. Totals may not sum due to rounding. This table summarises the major initiatives in the Budget and their impact on the fiscal balance.
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The table below shows the Government's macroeconomic forecasts. This table provides historical data and forward estimates for Australian Government General Government Sector. For the years to and from onwards, the underlying cash balance is equal to receipts less payments. Our plan for a stronger economy. Guaranteeing the essential services that Australians rely on. Strengthening Medicare, funding more hospital services and providing more affordable medicines through record health funding Equipping Australians with the skills for today and tomorrow including delivering up to 80, apprenticeships Delivering improved student outcomes through record funding for schools Ensuring older Australians have access to high-quality and safe aged care Ensuring women, children and people with disability are safe in our communities Restoring trust in the financial system Maintaining the integrity of our borders Keeping Australians safe by investing in defence and national security agencies.
Lower taxes for hard-working Australians. Investing in economic and community infrastructure. Supporting safe and quality residential care The Government is making an additional 13, residential care places available from — the largest number ever in a single funding round. Restoring trust in the financial system Building on its previous reforms and strengthening of regulators, the Government is taking action on all 76 Royal Commission recommendations and, in a number of important areas, is going further.
Putting Veterans and their Families First The Government is improving the wellbeing of veterans and their families by providing early access to services, simplified access to treatment and improved care for veterans with complex circumstances. Enhancing cyber security The Government is bolstering investment in our cyber security strategy to strengthen the defences of government IT systems to address key security vulnerabilities and improve our ability to quickly respond to cyber attacks.
Snowy Hydro 2. Micro-grids The Government is supporting feasibility studies for micro-grids which would harness distributed generation to provide secure, reliable and affordable power to regional and remote communities. Helping flood-affected farmers The Government has responded quickly to support farmers and communities devastated by the North Queensland floods and weather events. Easing the burden of drought Drought still affects many farmers throughout the country.
Economic outlook Returning the Budget to surplus Restoring the nation's finances by charting a responsible path to surplus After more than a decade of deficits, the budget returns to surplus in It has been a long road from where this process started when the Government was first elected. First surplus in over a decade Last 10 years Last 10 years. Next 10 years Next 10 years. Growth in major advanced economies.