When it comes to the federal budget, it’s virtually impossible to keep everyone happy. Politics though is a game of compromise, and in delivering this budget Mr Swan has had to balance the need to be financially prudent against the political desire to keep the punters happy. So how did he do?
Well in terms of being financially prudent, the budget appears to tick most boxes. As we will no doubt be constantly reminded in the lead up to the next election, the budget is expected to return to surplus in just 3 years time, and 3 years earlier than previously forecast. That is a consequence of greater than expected revenue and increased discipline with Government spending. Now the Government can rightly claim credit for the latter, but it’s a different story when it comes to the expectation for greater revenue.
For starters, increased revenue is highly dependent on the continuing global recovery and ongoing demand for our nation’s resources; and this is far from certain. The delicate situation in Europe raises some real concerns and if history has taught us anything it is that forecasts are notoriously fallible. Should economic activity fail to live up to expectations, it could really throw a spanner in the works, particularly if further Government stimulus should prove necessary (God forbid). Secondly, the increased revenue relies on the successful introduction of the proposed super profits tax, which is also far from guaranteed.
Nevertheless, should the economy grow as expected we will see a significant improvement in the nation’s finances. As for the more restrained fiscal policy, this will reduce the upward pressure on prices, and that in turn will lessen the prospects for further interest rate rises.
What about the goodies for ‘working families’? (You wouldn’t want to be an unemployed single these days!) The truth is that most of these were announced pre-budget, so there were no real surprises in last night’s budget. We will see a cut in the company tax rate, tax concessions for small business, new concessions for superannuation, simplification of tax returns, a new infrastructure fund and last but certainly not least, extra spending on health.
In order to help pay for these there have been a number of compromises, many of which will not be popular. The home insulation scheme has been scrapped, as has the building of those new child care centres, and to the chagrin of us greenies the ETS has been shelved. Smokers will be paying higher taxes and the pharmaceutical benefits scheme has been tightened up also. Of course the mining super profits tax plays a pivotal role, but this is a topic for another day.
All in all, the budget for 2010-2011 was reasonably responsible and should keep most people happy, except perhaps miners and smokers. Let’s just hope that the economic recovery continues apace and the mining boom remains intact. If not, this week’s budget will require some serious revisions.
Make the markets work for you