Report_on_2010_Federal_Budget

REPORT ON THE FEDERAL GOVERNMENT BUDGET 2010-2011 The Federal Commonwealth Budget of 2010-2011 has been created with a central task of achieving a budget surplus by 2012-2013, further strengthening the economy and to secure future growth by recognising the nation’s priorities. The main initiatives of this budget include reducing the budget deficit, easing the cost of living, building infrastructure, investing in skills for sustainable growth, renewable energy efficiency, superannuation, improving the health system and to implement further tax cuts. The Government’s strict fiscal strategy is to fully offset all new spending and to restrict real spending growth to 2 percent a year beginning 1 July 2010. Easing Cost of Living and Makling Tax Time Simpler In order to relieve the cost of living pressures of Australians, the Federal Government plans to alleviate more tax for working Australians which raises the effective tax-free threshold to $16 000, lowering tax on savings by giving back 50 percent discounts on interest on savings, assisting first home buyers through concessionally taxed First Home Saver Accounts, and are keeping competitive pressure on the big banks by supporting banking competition and investing $16 billion in residential mortgage-backed securities and enforcing standard deductions to simplify the tax system. Skills for Sustainable Growth & Building Infrastructure The Budget also focuses on investing $661 million for the Skills for Sustainable Growth strategy which will boost the skills base of our workforce and increase the productive capacity of the economy, $5.6 billion into new infrastructure and $1 billion for the renewal of rail networks. Supports Renewable Energy & Energy Efficiency The Federal Government has planned to spend $652 million for the Renewable Energy Future Fund which forms part of the $5.1 billion Clean Energy Initiative. Growing the Whole Economy As of 1 July 2010, the Resource Super Profits Tax (RSPT) of 40% will be applied on, primarily, the mining industry to ensure that all Australian benefit from the returns from our natural resources. Therefore in conjunction with the introduction of the RSPT, the company tax rate will be reduced to 28-30% in order to encourage new businesses and industries to create new jobs. It’s also planned to make that instant asset write offs for assets under $5,000 for all small businesses possible. Stronger, Fairer Superannuation The Federal Government plans to increase the super guarantee to 12%, contribute up to $500 to offset contributions tax for Australians on incomes below $37,000 and allow catch-up contributions by older workers with current balances less than $500,000. National Health & Hospitals Network The Budget claims that over a five year span, $7.3 billion will be invested into our national health system where $23 billion is expected to be invested in the duration of the rest of the decade. The national health and hospitals network will receive an additional $2.2 billion which will be distributed to GP Super Clinics, enhance after hours services, training nurses and to the introduction of individual electronic health records. MAJOR STAKEHOLDERS GENERAL PUBLIC The Budget has a positive impact on the wider community due to having their savings boosted through investments or tax deductions, ability to enjoy new infrastructure, certain individuals are being funded for training for the workforce and better healthcare. Unemployment is also set to fall to 4.75%. Inflation is also expected to be 2.5% within the RBA’s recommended percentile rate. A budget surplus is projected to be achieved in 2012-2013 in which is three years ahead of schedule, also when compared to other advanced economies. FIRST HOME BUYERS Due to the reform of the First Home Saver Accounts, purchasing homes have become more attractive since the remaining balance of the account will rollover into the mortgage instead of the accountholder’s super fund. MINING INDUSTRY & RELATED INDUSTRIES vs COMMUNITY There is a negative impact on the mining industry due to the introduction of the Resource Super Profits Tax of 40% of returns which may result in some jobs lost. However, the community can enjoy this share of returns since Australia had recently experienced a mining boom and increased demand for export. RETIREES & WORKERS This certain group benefits from this Budget due to the support in funding their superannuation fund. PATIENTS, DOCTORS & NURSES The budget will have a positive effect on this group since the medical staff is receiving extra funding for training and patients are attended to quicker and more efficiently due to investment in aged care and reduced waiting times. In addition, doctors are more willing and able to employ nurses with a government $25,000 allowance. FIRMS The Budget have positive effects on big and small firms since that big firms are able to claim half the cost of training, whilst a small business could claim back 90% of the training and are able to obtain asset write offs of up to $5000. Smaller banks also benefit since the Federal Government’s increased competitive pressure on the big banks. CIGARETTE SMOKERS Smokers will see this negatively since tax on cigarettes have increased but this tax may ultimately help many overcome this habit and focus on their health. DIRECTION OF AUSTRALIAN ECONOMY It is expected that the Federal Budget will bring the Australian economy three years ahead of schedule to achieve a modest budget surplus ahead of any advanced economy in which some are still recovering from recession. The Budget appears to be satisfying Australia’s priorities even though there may be some opposition towards it. Take for instance the Resource Super Profits Tax (RSPT), the mining industry and 49% of the Nielson poll was against this newly introduced tax which hasn’t even come into effect yet. However, it’s quite ordinary for a Budget, which affects the whole nation, to not be utilitarian for all citizens. There will always be opportunity cost involved in making such big decisions involving millions of people. Investments in the improvements to infrastructure, health systems and renewable energy are a good indicator that the Australian economy is being taken into the right direction by this budget. Every year’s budget is justifiable in its own context It’s true that the Federal Budget is justifiable in its own context. The Budget must reflect the needs of the nation in order for it to be relevant and effective. The Budget of 2009 will no longer apply in 2010 as it will no longer address recent issues and take into account our current economic status. The year 2009 was when the Australian economy was struggling to avoid recession whereas in 2010 we’re now focusing on further strengthening the economy and building on stronger foundations. INFLATIONARY TRENDS Australia must achieve an inflation target rate of 2-3% which will provide discipline for monetary policy decision making and will act as the base for private sector inflation expectations. Currently in 2010, the inflation rate is at 2.9% which is within the recommended range as suggested by the Reserve Bank of Australia. However during the 2008/2009 financial year, inflation rates have been above 3%, peaking at 4.4% in September. The inflation rate has declined since 2008/09 as our economic status has changed since the Global Financial Crisis of 2008. MONETARY POLICY In 2009/2010, the interbank rate or interest rate increased. However, due to the economic situation (recession) in Greece, the RBA is not choosing to increase the interest rates. If this is so, the interest rate will remain constant at approximately 4.48%. http://www.rba.gov.au/inflation/inflation-target.html FISCAL POLICY DIRECTION Australia is said to be outperforming other advanced economies, such as America and Greece, who have contracted over 3% in 2009 whilst Australia grew 1.4%. The economy in Greece at present day is feared to be claimed as bankrupt as it was one of the fastest growing economies. However, the consequence of growing too large too soon was that the Greek government produced large structural deficits. On the other hand, the Australian economy is aiming to reduce the budget deficit of $40.8 billion accumulated mostly due to the stimulus packages of 2008. That is the reason why both budgets of 2009 and 2010 involve low government expenditure whilst focusing in the direction gains in the long run. In addition, the Federal Government has introduced new tax reform, in 2010, to pay off the budget deficit quickly since it had was in the nation’s best interest due to the threat of the Greece economy collapsing. EFFECT OF APPRECIATION OF $A Due to the appreciation of the Australian Dollar, Australian consumers are more willing to purchase goods from overseas now than before when the $AUS was down. The $AUS was high in 2009 and higher in 2010 which meant that Australia was in a position of strength. This however will affect our local and domestic firms and businesses in which will drastically minimize profits. Thus, the Australian economy would gradually contract. BIBLIOGRAPHY * http://www.budget.gov.au/2010-11/content/overview/download/Budget_Overview.pdf [08/06/10] * http://www.smh.com.au/business/federal-budget/winners-and-losers-20100511-uuky.html [08/06/10] * http://www.smh.com.au/opinion/politics/its-not-just-the-tax-thats-wrong-but-the-process-20100608-xtjc.html [08/06/10] * http://www.rba.gov.au/inflation/measures-cpi.html [08/06/10] * Interest Rates and Yields - Money Market - Daily - F1. http://www.rba.gov.au/statistics/tables/index.html#interest_rates [08/06/10] * http://en.wikipedia.org/wiki/2010_European_sovereign_debt_crisis#Greek_government_funding_crisis [08/06/10] * http://www.budget.gov.au/2009-10/content/at_a_glance/download/Budget_at_a_Glance_2009_10.pdf [08/06/10] * http://www.budget.gov.au/2010-11/content/speech/html/speech.htm [08/06/10] * http://www.rba.gov.au/inflation/inflation-target.html [08/06/10] -------------------------------------------- [ 1 ]. http://www.budget.gov.au/2010-11/content/overview/download/Budget_Overview.pdf [08/06/10] [ 2 ]. http://www.smh.com.au/business/federal-budget/winners-and-losers-20100511-uuky.html [ 3 ]. http://www.smh.com.au/opinion/politics/its-not-just-the-tax-thats-wrong-but-the-process-20100608-xtjc.html [ 4 ]. http://www.rba.gov.au/inflation/measures-cpi.html [ 5 ]. Interest Rates and Yields - Money Market - Daily - F1. http://www.rba.gov.au/statistics/tables/index.html#interest_rates [ 6 ]. http://en.wikipedia.org/wiki/2010_European_sovereign_debt_crisis#Greek_government_funding_crisis [ 7 ]. http://www.budget.gov.au/2009-10/content/at_a_glance/download/Budget_at_a_Glance_2009_10.pdf