At the heart of Treasurer Wayne Swan’s election year Budget is a date – not a spectacular policy announcement, nor a raft of tax cuts and especially not a boost for small business.
That date is 2012-13, when the Federal Budget will be back in surplus to the tune of $2 billion – three years earlier than the Government forecast last year and three years before any other major economy gets back in the black.
It’s an impressive achievement made possible by what Swan calls Australia’s economic “position of strength”.
“Our economy and fiscal position remains among the strongest in the world,” Swan told Parliament.
“The Australian economy is today in an important transition phase.”
“Fiscal stimulus is winding back as planned. Business profits are recovering. The private sector is re-emerging as a driver of growth and we are taking steps now to maximise our opportunities for the future.”
But rather than using this position as a springboard for a vote-buying pre-Budget spending spree, Swan has remained true to his word by delivering a no-frills, fiscally-responsible Budget that favours a multitude of smaller initiatives rather than any new, big-bang announcements.
Skills, infrastructure and health are the main beneficiaries, with most new spending initiatives paid for by the controversial Resources Super Profits Tax, which is forecast to add $12 billion to the Government’s coffers over the next four years.
While there are a few goodies for SMEs, few of the big initiatives are new – the cuts to the corporate tax rate and immediate asset write-off policies were announced as part of the response to the Henry Review – and most won’t begin until July 1, 2012.
The numbers
There is little doubt that Swan has delivered an impressive set of numbers thanks to Australia’s incredible performance during the global financial crisis.
While the fiscal deficit in 2010-11 is expected to be $39.6 billion, a surge in Government tax receipts will see the deficit drop to $12.1 billion in 2011-12 and the Budget return to a $2 billion surplus in 2012-13. A surplus of $6.3 billion is projected for 2013-14.
Behind this return to the black are some impressive improvements in the Government’s economic outlook.
Where the Government forecast GDP would fall by 0.5% in 2009-10, it now expects growth of 2%.
Where the Government had tipped a rise in unemployment to 8.5%, it now says unemployment peaked at 5.8% and will now fall to 4.75% – a level that indicates full employment and the savage skills shortages that go with it.
Looking forward, the Government expects GDP to bounce back strongly, growing by 3.25% in 2010-11 before accelerating to 4% in 2011-12.
Underpinning this growth is a strong rise in business investment, which is tipped to increase by 7.5% in 2010-11 and by 4% in 2011-12. Of course, given the resources sector will provide much of this investment, whether these forecasts are too rosy could depend on the mining sector’s reaction to the Super Profits Tax.
Retailers can also take heart from the Government’s projections for household consumption, with spending projected to grow from 2.75% in 2009-10 to 3.5% in 2010-11 and 4% in 2011-12, which looms as a real boom year for the Australian economy.
The key initiatives
While the Budget lacks a real headline-grabbing initiative, Swan seems to have taken a something-for-everyone approach by delivering a host of smaller, targeted items.
The big-picture items include:
What’s in it for small business?
The main initiatives trumpeted by Swan were known well advance of the Budget – the reduction of the corporate tax rate from 30% to 28% and the immediate write-off for assets costing less than $5,000 were part of the Government’s response to the Henry Review.
However, there are some small wins scattered in the Budget detail. These include:
What’s missing?
While industry groups are likely to be particularly pleased with the extra spending on skills and infrastructure, many of their pre-Budget pleas appear to have fallen on deaf ears – or at least a Treasurer keeping a careful eye on spending.
There is no extra money for the consistently under-funded Export Market Development Grants and no extra money for innovation programs, although the Government’s Commercialisation Australia grants product and R&D Tax Credit will come into effect this year.
And while the Government has taken an admirable first step down the path towards simplified tax returns for individuals, there is no sign of similar measures for business.
And once again, no sign of any movement on payroll tax.
Strong platform for election
Swan’s “position of strength” phrase doesn’t just describe this Budget – it also describes the Rudd Government’s position coming into the Federal Election later this year.
By getting the Budget back to surplus three years earlier than expected, Swan has protected Labor from any accusations of poor economic management. Better still, the Government will be able to emphasise that Australia is on track for another boom period.
And it would appear to have more than a little room to move in terms of funding a few pre-Election promises.
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
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