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Download and view the entire report (pdf, 192k)
From a big picture viewpoint, this Budget was much as expected (in terms of the surplus and reduced public sector demand) and represents only a modest tightening of fiscal policy. Our calculations point to an approximate structural tightening of the Budget of around ¼% of GDP per annum in the next few years (see the Medium Term Fiscal Context section). But certainly it is not a horror Budget and not one that will radically crunch the economy or inflation.
The Government has implemented much of its election agenda with the pre-announced tax cuts very much at centre stage. Other measures, although numerous, are relatively small. These include increased child care rebates, raising the Medicare levy threshold, additional funds for older Australians and their carers, and increased education spending. On the other side of the ledger, upper class welfare has been trimmed (mean tests for baby bonuses and welfare payments). Interestingly, the largest ongoing savings come from running the public service more efficiently ($2b per annum) and cutting the previous Government's programs ($1b per annum). Other areas of focus include: extra money to boost the supply of new housing, and a welcome cut in withholding tax as part of a push to enhance Australia's role as a financial centre and climate and water funding (see section on detailed measures). Finally, the Government confirmed its intention to conduct a detailed review of tax policy - with the report due late 2009.
The other big headline catcher is the establishments of an infrastructure fund (around $21b), an education fund ($10b) and a health fund ($11b). These all are funded from the current and next year surpluses. Clearly the focus here is on addressing perceived bottlenecks and inadequacies. While potentially productivity enhancing, if the money is spent quickly that would not be consistent with tighter policy or taking much heat out of inflation.
Overall a Budget that implements most of the new government's agenda - rather than a radical tightening of policy. The RBA would see it as "leaning in the desired direction" but not much more.
Download and view the entire report (pdf, 192k)
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