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Wednesday, May 10, 2006

The Big Night: Budget 2006

Yes, kiddies - it's the big night (or rather, the morning after - blogger.com was crashed all night, apparently by bloggers eager to discuss the spoils. Or the results of the Dancing With The Stars Finale, one or the other) - the 2006 Budget. So what was in the kitty, and who's it going to?

Peter Costello played up the phenomenal performance of the Australian economy - a performance that even the likes of Gerard Henderson are now admitting is largely due to the risky, unpopular, but ultimately necessary reforms of Paul Keating as both Treasurer and Prime Minister - but also leaned heavily on the Howard Government's retiring of government debt. Curiously, he neglected the massively ballooning current account deficit.

Without further ado, some of the particulars:

Infrastructure
- Investment in infrastructure was a major feature, including $15bn for the Auslink Programme for rail and national roads, including $800m for the Hume Highway. $307.5m for local councils to repair local roads under the Roads to Recovery Programme, and over $200m to improve interstate rail links between Melbourne and Brisbane.

Environment
- $500m for the regeneration of the Murray River System
- Umm ... didn't hear about anything else for the environment. Renewable energy initiatives? Nope. Nada. Zilch.

Medicine
- $235m for new medical infrastructure including the Garvan, Victor Chang and Murdoch Children's Research Institute.

Tax
- A `new, comprehensive tax reform plan' !!! (listen up, kids - especially you, Mr Turnbull!) From 1 July, high marginal tax rates will be reduced from 47 and 42 to 45 and 40 respectively. The threshhold will be increased, so that the 15c rate kicks in at $25,000, 30c at $75,000, and the 40c at $100,000. According to Cossie, 80% of taxpayers will pay 30c in the dollar or less. A low income earner will not pay tax until their annual income exceeds $10,000. How very pleasant.
- Tax cuts, tax cuts, tax cuts! The change in marginal rates represent a cut of anything from $120 to those earning over $150,000 to $10 for those earning $40,000. Which, where I live, is just about right for a sandwich and a milkshake ... more analysis on the specifics of the tax cuts from the Herald's Ross Gittins.

- Small business taxation will be reformed. Business tax will be cut by $3.7bn, which will keep them `ultra competitive', and changes will be made to make tax concessions for small businesses simpler.

- `More audits on high wealth individuals', eh? I'll believe that when I see it ...

Superannuation
- `The most important reforms in decades', apparently. Well, here they are: a proposal to exempt Australians aged 60 or over from end taxation on benefits from superannuation benefits, whether they are taken in a lump sum or as a pension. This is expected to cost the government $6bn in the first three years. Cossie was nearly wetting himself in the press conference when he announced this, so apparently, it's good ...

Families
- Family Tax Benefit Part A will be `enhanced' (my favourite word) to a maximum $40,000.
- The Large Family Supplement will be extended to take in families with three children.
- Limits on subsidised family day care and child care places have been entirely removed. (While this is much needed, watch for ABC Learning's shares to go through the roof on this news)
- A paltry $10m for after school care. So much for the `budget for families'. Perhaps this is why it was talked up so much in the lead up - because, in the end, it delivered so little.

The Elderly
- An additional $1000 tax free to those being paid the Carer's Allowance
- Exemption of property values from income assessment for rural pensioners

Defence
- A 3% increase ($10.7bn) in defence funding, including $2.2bn for C17 Airlift aircraft, $1.5bn over ten years for `army survivability' (not sending them to pointless wars would help)
- $250m for recruitment to the ADF.
- 400 extra staff for ASIO, and $125m for ASIS

National Security
- $1.5bn over five years for national security, including $389m over four years for the intercepting of foreign illegal fishing vessels, five new `dedicated boat destruction vessels' to `protect Australia's sovereign interests'. Which I'm sure will only be used on fishing vessels.

The Arts
- $5bn to establish a new 24 hour All-Arts channel to be overseen by a dedicated Minister for the Arts ... ah, had you going for a minute there didn't I? Nope, not a whole lot mentioned by Cossie about The Yarts. Not a bean. Not a dime. And given that a billion dollars is a one with nine zeroes behind it, you'd think they could have found a few bucks under the carpet somewhere .... but I'm being naive, aren't I. Education was also decidedly under-mentioned.

And One Outside The Box ...
- $420,000 to encourage persons of multicultural backgrounds to `join surf clubs'. No word on funding to provide `Free Beer' signs for outside mosques to encourage similar reciprocal arrangements.

Well, that about wraps it up.

Now, I could be wrong, but a lot of these things appear to impinge on what are traditionally regarded as state responsibilities. I don't have a problem with funding worthy cauces, of course, but is it right to with-hold the funding at the business end (i.e. the much-maligned Commonwealth Grants Commission) and claim the plaudits for doing such things as fixing major highways? Suddenly all those grins at COAG may have been a little sheepish.

Given that we're not in an election year, there is a ton of expensive commitments here. Will the good times keep rolling? Chris Richardson of Access Economics has described the phenomena which has allowed the government to bestow such largesse as a `once in a century' windfall, which has come courtesy mostly of China, thanks to the resources boom. This being the case, is setting in stone expensive commitments like the superannuation changes rather than reforming superannuation taxes really prudent? And what does this spendfest say to the Reserve Bank's recent increase in interest rates? Keep spending, Aussies - it's the Australian way!

Comprehensive coverage at The 7:30 Report, Lateline, and PM. All coverage, you will note, comes from the truly indefatigueable ABC, an organisation that received $88.2m in tonight's Budget, an amount the ABC's chairman praised as the best result in 20 years. I hope he's right - it still falls short of the $125m recommended in the still-unreleased KPMG report on the public broadcaster. I for one am willing to double my 8c a day.

Labor's Budget Reply follows on Thursday, and while some are saying that the party has a big task on its hands, it's correct to identify the neglect of productivity as a big failing in respect to this Budget, as well as the possible inflationary impact of letting so much extra money into the economy just after the Reserve's anti-inflationary move. The Budget does little for families, and for single parents (women in particular). Rest assured the ALP will have plenty to talk about in two days' time.

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