Pre-election Fiscal Outlook Report
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Fiscal and Economic Outlook 13 It is important to note that changes to these variables can be either positive or negative and, if taken together, by 2010-11 could result in variations as high as $295 million. This is unlikely to occur, as all three components would need to vary by 1 per cent per annum and in the same direction; however it demonstrates the inherent volatility in the estimates. Other Commonwealth Grants and Subsidies SPP agreements have historically posed risks to state budgets in several ways. However the reforms to Commonwealth-State financial relations by the COAG are likely to reduce the risks in relation to the major SPPs in areas such as health, education, vocational education and training, housing and disability services. However, inadequate indexation will remain a key risk under the new arrangements. Risks to the Territory may still exist in relation to NPs, which are a new form of payment included in the COAG reforms, due to issues surrounding co-investment costs, input controls, inadequate indexation and raised community expectation following the expiration of agreements due to the provision of seed funding. The risks related to SPPs and NPs cannot be quantified. Own-Source Revenue The amount of revenue received from Territory taxes and royalties is dependent upon the performance of the Territory economy and other external factors. Forecasting such revenue involves judgements and assumptions being made about the performance of the various economic factors and indicators that impact directly on Territory taxes and royalties, such as growth in wages, employment, prices and exchange rates. It is difficult to accurately predict revenue collections into the future, particularly for the later years of the forward estimates. The most difficult source of revenue to forecast is conveyance stamp duty, as it is linked to activity in the property market, which can be volatile. Although there is evidence that the growth in activity levels in the residential property market has eased, the extent and timing of any drop in activity is difficult to predict and could have a significant impact on conveyance stamp duty collections. Forecasting mineral royalty revenue is also difficult because it is influenced by a number of factors, but predominantly mineral prices, production levels and exchange rate conditions. For example, strong growth in mineral prices since 2004-05 has been the main contributor to increased mineral royalty collections. The mineral royalty forecast is based on the assumption that current market conditions will be maintained into the future. In this regard, market changes in mineral prices or exchange rates will have a material impact on the forecast. For example an Australian dollar to US dollar exchange rate change of 1 Australian cent will affect annual royalty collections by approximately $1.6 million, at current exchange rates and assuming there are no changes in other market and production conditions. In total, a variation of 1 per cent to the parameters used to forecast Territory taxes and royalties would affect revenue by about $4.9 million for 2008-09.
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