There were few surprises in last night’s budget. The key focus on spending is in Healthcare and funding will come from tobacco tax hikes, axing the emissions trading scheme, and the Resource Rent tax.
The budget is forecast to go into surplus in 2013 ahead of schedule.
Budget – some highlights:
Expect to get back in surplus in 2013 much sooner than previously forecast.
The key spending focus was on Healthcare: An additional $2.2 billion for the health system was announced, taking total investments over the next five years to $7.3 billion; also $355 million will go towards new GP super clinics and upgrades at existing facilities and $417 million for an after-hours health services, including Medicare Locals; $523 million was also allocated to train nurses and a new roll-out of a $467 million e-health records system
Also extracted saving from Healthcare with: $2.5 billion in savings over the next five years through reforms to the Pharmaceutical Benefits Scheme ; The tax offset threshold for health-related expenses will be raised by $500 to $2000, a move that will save the government about $350 million.
The Henry Tax Review measures were confirmed, covering changes to the superannuation guarantee (12% in 2012), a cut in the company tax rate to 28 per cent and a 40 per cent tax on mining profits to fund infrastructure in resource states.
The controversial Resource Rent Tax remains as initially proposed. This is set to increase by $9 billion in the short order. The government calls this a super normal profits tax and BHP and RIO are set to be the hardest hit by the changes. The 40 percent tax on resource profits will start from 2012 and raise $12 billion in its first two years.
Tobacco tax hikes are expected to deliver $5 billion over four years.
Business incentives include company tax rates to be cut from 30 per cent to 28 per cent from July 2011 and small businesses will be able to write-off assets up to $5000.
There are new tax incentives for savings, however these savings will be limited to the first $1,000 of interest earned (an extra $177 in your pocket).
In July 2012 PAYE will be able to simplify their tax returns, affecting six million Australians.
The bracket creep was addresses, come July 1 it equates to an extra $9 a week for a workers earning $50,000.
Addressing the looming emerging skills shortfall, the Government will spend $661 million to provide up to 70,000 new training and places and support about 22,500 new apprentices.
The budget funding depends on Resource Rent Tax passing and China’s insatiable demands for commodities continuing to fund spending.
Our View
The Australian economy has come through the Global Financial Crisis remarkably unscathed and the issues over the sovereign debt in Europe is a timely reminder. The government is relying on our growing export markets and the implementation of the Resource Rent Tax to fund the budget. Time will tell whether our dream run can continue, or whether we too experience contagion from overseas influences.
By Michael Hevern
Head of Research
