Key Budget Announcements


As the Treasurer says in the opening line of his budget speech, "this budget is forged in the fire of the most challenging global economic conditions since the Great Depression. It is a budget that supports jobs today by investing in the infrastructure we need for tomorrow."

Headline Numbers
Deficit: $57.6 billion (4.9 per cent of GDP).
Unemployment expected to peak at 8.5 per cent.
New spending: $13 billion net.
New savings from budget cuts: $22.6 billion over four years.
The Treasurer has committed to halve the deficit by 2012–13, and return the budget to surplus by 2015–16.

Economic Outlook
The Treasury confirms a gloomy immediate outlook for the Australian economy but predicts strong growth to return in the medium term.

The world economy is expected to contract by 1.5 per cent in 2009, the first contraction in six decades, with advanced economies’ GDP expected to contract by 3.75 per cent in 2009. A recovery is not expected to gather pace until mid-2010.

Household consumption is expected to contract by 0.25 per cent in 2009–10, owing to the "large falls in household wealth stemming from the collapse in global stock markets, combined with concern about rising unemployment, are expected to continue to weigh heavily on household confidence and consumption."

Home construction and investment is expected to remain "subdued", however "the sector is expected to stage a solid recovery in 2010–11 with growth of 11.5 per cent." Business investment is expected to contract sharply in 2009–10, falling by 18.5 per cent due to "the collapse in global commodity prices", exports are forecast to fall 4 per cent in 2009-10, and imports are also expected to contract by 6.5 per cent "in line with the slowing in domestic demand and the depreciation of the Australian dollar since its peak in mid-2008".

Australia’s terms of trade will drop by a vertiginous 13.25 per cent in 2009–10, driven again by falling commodity prices, and the nation’s current account deficit is expected to "widen to 5.25 per cent of GDP".

As a result of the recession, unemployment is forecast to peak at 8.5 per cent, and growth will not recover until 2010–11.

According to the Budget Papers: "The main contributors to the slowdown are sharp falls in business investment and exports, as well as a smaller contraction in household consumption."

Stimulus and Other Spending Announcements
The Treasurer argues the recession would have been much worse if not for Labor’s aggressive fiscal stimulus policy, claiming that the economy might contract by 1.25 per cent if not for Labor’s deficit spending (it will still contract by 0.5 per cent).

The Government is embarking on an ambitious round of nation-building infrastructure spending, "action that will see 35,000 building sites spring up, around the nation".

The Government will continue the First Home Owners Boost of $7000 in addition to the existing First Home Owners Grant of $7000, but only for six months, with the full rate to be extended for a further three months before stepping down to $10,500 and then to the old level of $7000 by the end of 2009.

Small business also gets a leg-up, with an increase to the tax break for small business investment to 50 per cent over the current level of 30 per cent "for eligible items over $1000 acquired between 13 December 2008 [and]31 December 2009".

For those workers affected by the downturn, the Government is investing in labour market and vocational training programs. $1.5 billion over five years will be invested in a "comprehensive" Jobs and Training Compact. There will be $83 million over four years for a temporary Training Supplement of $41.60 per fortnight to eligible job seekers on Newstart Allowance or Parenting Payment who are undertaking approved training, and $277 million for the Compact with Young Australians, which will guarantee an education or training place for every young person under the age of 25 who wishes to upskill (in return for mandated participation in school, training or work). $438 million will assist those who lose their jobs in a Compact with Retrenched Workers to fund intensive assistance at Centrelink, and Swan also re-announced the $650 million Jobs Fund, previously announced on 5 April 2009.

In the biggest spending announcement of the budget, the Government has revealed which projects will get funded by its big Infrastructure Fund. There is $4.6 billion for rail projects, including more than $3 billion for a dedicated dual rail link from Julia Gillard’s electorate in Werribee in Melbourne’s west all the way in to Southern Cross Station, as well as money for a badly needed lightrail project to run down the Gold Coast’s coastal strip. There’s also $3.4 billion in roads and highways and $389 million for ports. The $4.7 billion for the National Broadband Network is included in the spend, and there is new investment in a $3.4 billion Clean Energy Initiative, of which $2 billion will go to continue Labor’s obsession with the so-far unproven technology of carbon capture and sequestration, with $1.5 billion to add 1GW of solar power in four operating plants by 2015.

In education, an extra $2.1 billion will go to higher education over five years, including funding for more HECS places, a higher rate of indexation for university funding, some extra money for PhD scholarships and loosened earnings tests for students on Youth Allowance and ABSTUDY, plus $613 million to fund 11 university and 12 vocational and TAFE sector projects as part of the Education Infrastructure Fund.

Research and innovation is supported by $1.2 billion from the Education Infrastructure Fund for 30 research infrastructure projects, including a new ship for the CSIRO, support for the Square Kilometer Array radio telescope and funding for the intriguing Atlas of Living Australia project.

In health, a further $1.5 billion has been committed to public hospital infrastructure, plus a further $1.3 billion in advanced cancer treatment and health care, and $430 million has been announced in "translational research infrastructure" for medical research facilities, for example in Indigenous health, child heath and mental health.

The previously leaked $30 per week rise in the base pension has materialised, to take the single pension to a more liveable level, and the Government has announced it will simplify the various pension allowances and supplements like the Utilities Allowance into a new fortnightly "Pension Supplement", which can also be accessed when needed in a lump sum.

Again as foreshadowed, Paid Parental Leave will finally arrive in 2011, with $731 million committed over five years to deliver 18 weeks worth of the minimum wage to the "eligible primary carer" who "will need to meet a work test". However, these payments will count as taxable income and parents receiving the parental leave will not get their Baby Bonus or Family Tax Benefit B.

In defence and national security, the budget commits to the Defence White Paper’s huge projected increase in military spending, maintaining the 3 per cent real increase in funding out to 2017–18. As the Budget Papers state, "the new funding model will provide an additional $11.6 billion to 2018–19 and an additional $146.1 billion for the life of the White Paper until 2029–30 … [with the result that in total Defence gets]$308 billion over the next decade". Also, an extra $1.4 billion for operations in Afghanistan is budgeted for, plus $289 million for a whole-of-government strategy around people smuggling, $365 million for maritime patrol and $685 million for assorted avaiation security, counter-terrorism and foreign policy commitments.

In overseas aid the Government remains committed to its target of raising Official Development Assistance to 0.5 per cent GNI (still well below the amount we committed to as part of the Millennium Development process, but welcome in the context of Australia’s stingy track record in this regard).

In climate change, the Government will of course delay the introduction of the CPRS, pledging $200 million "to support businesses and community organisations that do not receive Emissions Intensive Trade Exposed assistance".

For Indigenous affairs, the Closing the Gap initiative continues, with an extra $807 million for the Northern Territory Emergency Response, and $202 million in extra funding for programs to reform Community Development Employment Program assistance (if this is indeed a reform).

In Immigration, the Treasurer has announced the Government will wind back skilled migration by 25,400

Where the Savings are Coming From:

Age pension eligibility raised to 67 years by 2023.
Higher rate of income test claw-back for pension (up from 40 to 50 per cent) which is forecast to affect as many as 30 per cent of all pensioners.
Pension bonus scheme axed.

Cap reduced on concessional superannuation contributions from $50,000 to $25,000 and the transitional cap from $100,000 to $50,000. This will save $4.2 billion over four years.

Private Health Insurance Rebate
The private health insurance rebate will be "rebalanced". New tax brackets will be introduced to phase out the PHI rebate from the existing 30 per cent rebate for singles/families earning $75,000/$150,000 down to nothing once incomes get over $120,000/$240,000. In addition, the tax surcharge for not taking out PHI will go up for these wealthier families. This will save $1.9 billion over five years

Family Payment Reforms
Family Tax Benefit A equals $17 billion on current figures and has grown at 9 per cent a year for the last decade. From 2012 the cut-offs will be indexed from their current levels at $150,000. This will save $1.4 billion over four years. In addition, the indexation will be tweaked to shave off another $1 billion over four years.

Tax Reforms
Business loss tax deductions for high-income earners tightened.
Taxation of Australians working overseas increased.
Tax deductability of super contributions reduced.
Tax laws around trusts and private companies tightened.

All up, these tax measures will save $4.6 billion over 4 years

Defence "savings" are not really explained — but the Budget Papers forecast $2 billion in savings to 2010–13 including a whopping $1.7 billion in 2012–13 alone.

Ben Eltham is New Matilda's National Affairs Correspondent.