A Seinfeld budget
by Peter Switzer
If the mad lot at the Reserve Bank had it in their mind to raise interest rates soon, nothing Treasurer Wayne Swan decided to do would have changed their mind. So, you could conclude that this is a Seinfeld budget — a budget about nothing!
Of course, this is purely an economist’s view, as there were obviously a number of worthwhile social measures such as $2.2 billion for mental health, $1.8 billion for regional hospitals and 16,000 skilled migrants for the regions where the mining sector is desperate for people.
Frankly, the Treasurer’s effort was adequately described by The Australian’s page one headline: “That’s not a knife, Treasurer.”
No “tough” budget
Now, clearly the Government is responding to the fact that a big chunk of the Aussie economy is in slowdown or recession mode because of the combined effects of the Reserve Bank’s too-high interest rate policy and then this policy’s contribution to creating an Aussie dollar in the 107-US cents region.
Another reason the Treasurer has not lived up to his “tough” pre-budget rhetoric is that this economy is going to heel itself with the budget deficit of $49.4 billion this financial year set to turn into $22.6 billion next year and finally bobbing up as a surplus of $3.5 billion in 2012-13.
This is thanks to the economic growth which is expected to come out of the so-often-talked-about explosive terms of trade and the related surge of business investment in the so-called pipeline.
These twin beauties, or evils if you are worried about interest rates, will not only make our growth figures look respectable but is also expected to bring inflation. This is why the RBA is so determined to punish Australians with mortgages — they won’t accept an embarrassment of riches!
Aussie growth forecast
For those interested, this financial year is tipped to grow by 2.25 per cent — much weaker than last year’s guess of 3.25 per cent. They believe we will grow at a four per cent pace in 2011-12 and then drop back to 3.75 per cent for the year after.
But this is predicated on China’s growth to continue and while I think that is probable, it does assume that the global economy continues with very little hiccups. That might prove a big call over two years.
Budget in detail
- A two-year freeze on the threshold for family payments targeting those with income over $150,000 to save $1.2 billion, which is not disastrous.
- The dependent spouse tax offset abolished for under-40s, which could hit some families hard.
- A tougher test for single mums on welfare with an “earn or learn” option for under 21s.
- Those breaching the super contributions limits will get one chance before the severe penalties apply provided the mistake is less than $10,000.
- The $5000 tax write off for small business is good but it applies to businesses with turnovers less than $2 million and it doesn’t start until mid-2012!
- A reduction in the fringe benefit tax break for employees leasing cars for those driving more than 15,000 kilometers.
There are lots of little things in this budget. The Australian’s Paul Kelly called it a patches budget to deal with a patchy economy but I call it a budget about nothing as the Treasurer can’t do much about China’s demand and the bloody-mindedness of the overzealous Reserve Bank.
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Published on: Wednesday, May 11, 2011
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