Comment on the 2007 Budget by Head of the UQ Business School, Professor Tim Brailsford
Gone are the days of Budget night delivering bad news about increased taxes on cigarettes and booze, and the government trying to explain why it has to curtail expenditure on essentials such as health and education.
Under Peter Costello, the government has delivered another massive surplus in the past year and promises more to come. The government is awash with cash, and in an election year, the Coalition is keen to make sure all voters get a slice of the cake. This Budget, coming on the back of consecutive personal tax cuts since 2004, contains something for everyone.
The headline item is $5 billion in personal tax cuts, some to be delivered now, with the high income earners having to stick with the government for 12 months to enjoy these goodies. Of note, Peter Costello has now delivered personal tax cuts every year since 2004 and the government’s political risk that the taxpayer has now become blasé.
At the top end, not only has the top marginal rate been reduced but the threshold at which it cuts in has increased from $70,000 in 2004 to $180,000 by 2008. By delaying the big cuts, the Treasurer keeps a lid on spending, which in turn curbs inflation.
That is good news as far as interest rates are concerned, as the last thing John Howard wants between now and election day is a rise in rates. The financial markets are onside and have viewed the budget as neutral - most commentators now believe the probability of a rate rise in the near future as low.
Big picture items such as infrastructure, training, education and defence appear prominently which should go some way to satisfying the calls for nation-building.
However, on closer inspection, much of the infrastructure spending is delayed for several out-years and critics will no doubt point out the immediate needs. However, the pipeline of current projects combined with capacity constraints in construction means that the new projects probably could not be brought much further forward even if we wanted to.
The hot issue of the environment and climate change receives only passing mention, but the government is likely to be holding something in reserve to pump the recommendations from its special Task Force on climate change which will report in the next few weeks.
The bottom line is that the Australian economy remains on solid ground. The GDP forecast of 3.75% growth is good news, which is even better when combined with modest inflation of around 2.5%.
This is a good report card, and the Treasurer has managed to give everyone a little reward without unduly disrupting the economic fundamentals.
The criticism will be directed toward the lack of long-term vision and the Budget’s silence on issues such as the environment and health. But in an election year, there will no doubt be Cabinet plans to make some major funding announcements in the months to come.
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