Federal_Budget_2010

THE FEDERAL 2010 FEDERAL BUDGET The federal budget produced by former Prime Minister Kevin Rudd, Treasurer Wayne Swan and the Labor Party forecasted that the budget will be in surplus by 2012-13 through changes to the fiscal policy. As previously indicated by the Labor Party, it has produced a restrained budget in which it focuses on economic management in an aim to get the budget back to a surplus and thus made changes to their fiscal policy. The changes to the fiscal policy will impact upon the level of economic activity, resource allocations and the distribution of income in Australia. Government revenue is expected to recover thanks to booming commodity prices, higher business profits and lower unemployment after “Australians have defied the global economic gravity” (Wayne Swan). Major changes include the introduction of the tobacco excise tax and a 40% resource tax which have been particularly controversial. The tobacco excise tax will raise cigarette prices and is expected to bring in an extra 5 billion dollars meanwhile the resources tax is anticipated to give the government 12 billion dollars by the end of the 2013-14 financial year. The tobacco excise tax which was introduced was highly publicised in the media with many arguing that it will not be effective in reducing the number of smokers. Many like the AACS (Australasian Association of Convenience Store) has gone on to state that “the excise tax decision will fuel the black market and organised crime” therefore many view this tax as being ineffective in achieving one of the main aims which is to reduce the number of smokers. It is also further argued by the AACS that it is the in fact, the low income earners who buy the bulk of the cigarettes so in essence, this new tax does not create an equal distribution of income which goes against one of the fundamental values of the Labor Party. The compulsory resource tax or otherwise known as the resources super profits tax was probably the most controversial issues in the government’s budget and fiscal policy in which the government wanted to tax the mining companies 40% on all profits. There was a fear that this new tax would weaken the Australia’s economy however it is quite clear that though it may weaken the growth of the mining companies in the short run, it will eventually be of greater benefit to the Australian economy as it helps the smaller mining companies to develop as they are exempt from the tax. This new fiscal policy is seen by the Labor party as being one of the keys to returning back to surplus. Another fiscal policy introduced by the Labor party is the increase in superannuation to 12% which has been warmly welcomed by the Australian public as it gives them extra money for after their retirement. There have also been changes made to expenditure to previous years with the most notable of which being the extra money put into health. An extra 2.2 billion dollars has been allocated to health after the highly publicised poor hospital conditions of Australian hospitals and a total of 7 billion dollars over 5 years. Most of the money will be coming from the new tobacco excise tax and this extra funding will be seen as being much needed in order to improve our health system. The most important changes in terms of spending for the health sector is the 355 million dollars to be Funding has also gone up in transport (1 billion), infrastructure (5.6 billion), energy (652 million) and defence (21 billion) all of which a welcome boost is for the Australian community as well as the Labor’s chances of getting re-elected. One area in which the government should be commended upon is their funding of the $661 million for Skills for Sustainable Growth Strategy in which 39 000 training places will be built. However one area, which seems to be lacking the funds, is in the agricultural sector in which farmers feel like they are being ignored as though the increase is there for them, it is substantially less than what was requested despite the 420 million dollars for drought assistance for 2010-11. The NFF (National Farmers Federation) has attacked both the Labor and Liberal Parties for failing to tackle issues such as property rights, population policy, the economy and the environment and it is therefore a necessity that a solution be brought up to tackle the issues. The budget that has been released will have immense impacts upon Australia’s economy. The Australian economy which has been the envy of developed countries following the strong economic performance during the Global Financial Crisis is expected to continue to make big strides basing their recovery around trade. Australia will therefore benefit from the growth in Asia especially China as well as India. As the economy strengthens, household consumption is expected to increase with a stronger labour market in which the unemployment is expected to hit around 4.75% by the end of the next financial year which is a half a percent drop from the current rate of 5.25%. However the biggest impact that the budget has had is its forecast that Australia will be returning to surplus three years ahead of schedule. This however was slammed by the Shadow Treasurer Joe Hockey who stated that budget seems better due to “premature pessimism” which forecasted very grim figures however understandably; Wayne Swan believes it is his new taxes and fiscal policy which has led to such positive figures. It is also forecasted that GDP growth will be at 3.25% in 2010-11 and will increase to 4% in 2011-12.