The government shamelessly juggled the figures but this is still a squeeze, writes David Potts.
There, I told you it wouldn't hurt. If there wasn't something for you in the budget then you obviously don't vote Labor.
Well I was half right. I wasn't counting on what was snatched back, such as the tax break on interest or lifting the $25,000 limit on salary sacrificing for those close to retirement with small super balances. But they were never there in the first place and you can't cry over spilt milk when the bottle is still in the fridge.
One surprise though: the concessional reduction on the minimum drawdown for retirees was extended another year.
No, the pain will be soaring public-sector and utility charges along with worse services than usual because GST collections, bread and butter to the states, have slumped.
Nor will there be any great shakes from the economy, either. Although growth is forecast to pick up, don't expect to see much of it.
Treasury admits that, outside of mining, the economy will crawl along by only 2 per cent for the next couple of years, which must be why unemployment is also forecast to rise. That doesn't sound good for either the sharemarket or housing.
Head west, though, and you'll be knocked over by a growth rate of "nearly 9 per cent per year", which is even faster than China's.
Trouble is a good deal of that will finish up offshore and only some of it will go into new jobs.
Besides, whatever is left over for households from the mining boom will more likely be saved than spent, especially when they see their next gas and electricity bills. Anyway, the pick-up in overall growth, as distinct from what's going on across the street, partly depends on a 0.75 per cent cut in interest rates.
Unless the nation suddenly goes on a spending spree with the handouts, which mostly don't arrive until early 2013, I'm sure the Reserve Bank will oblige.
Then again, why should it after the government had to use every accounting trick in the book, plus a few of its own, to reach a surplus that looks a bit suss?
Because the budget is tight around the bottom line, where it counts, despite hanging loose everywhere else.
The government shuffled spending into every year but the one in question, left the cost of the NBN out altogether, and pretended a mining tax designed by miners - who want to avoid paying anything - will collect $4 billion.
Maybe there's really a deficit of, say, $10 billion, but that will still suck $34 billion out of the economy in one year.
Even the dollar amount of spending falls next year - surely a government first and all the more surprising that it should be this one.
If you don't think that's tight, you better sit down for this one. Revenues will soar 12 per cent. So spending will grow slower than GDP and revenues faster. Think the Reserve won't see that as contractionary?
Frequently Asked Questions about this Article…
What does the latest budget mean for everyday investors?
The latest budget signals a squeeze for everyday investors, with limited direct benefits and some tax breaks being retracted or adjusted. While there are small wins like a one-year extension on the retiree minimum drawdown reduction, overall financial pressures—especially rising public utility charges—might weigh on household budgets.
Are there any positive changes for retirees in this budget?
Yes! One surprise was the extension of the concessional reduction on the minimum superannuation drawdown for retirees for another year. However, other hoped-for tax breaks, like increases in salary sacrificing limits for those near retirement with small super balances, were not delivered.
How will the budget affect public utility and state charges?
Unfortunately, the budget outlook suggests soaring public-sector and utility charges along with potentially worse services. This is mainly due to a slump in GST collections, which are a key revenue source for the states, likely increasing living costs for many Australians.
What’s the economic growth forecast, and how might it impact investments?
Economic growth outside the mining sector is expected to crawl along at around 2% per year for the next couple of years, with unemployment forecast to rise. This slow growth environment isn’t great news for the sharemarket or housing, meaning investors should stay cautious and realistic about returns.
Is there any good economic news regionally in the budget outlook?
Yes, the western regions are forecast to grow nearly 9% per year, even faster than China’s growth rate. However, much of that growth might flow offshore and only partially create new local jobs, so its benefits might not fully reach everyday households.
Will households feel more comfortable spending with the current budget outlook?
Probably not. Most of any leftover gains from the mining boom are likely to be saved rather than spent due to rising living costs like gas and electricity bills. Overall, unless a spending spree kicks in with government handouts (mostly arriving in early 2013), household spending is expected to remain cautious.
How is the government managing to show a budget surplus despite the squeeze?
The government has used a mix of accounting tricks, shifting spending into different years, and excluding certain big costs like those of the National Broadband Network (NBN) to present a surplus. Some projected revenues, like from the mining tax, may also be optimistic, making the surplus a bit questionable.
What should everyday investors expect from interest rates in this budget climate?
Given the tight budget and slower economic growth, interest rates might be cut by around 0.75% to help stimulate the economy. The Reserve Bank is likely to oblige, but investors should stay prepared for a cautious market environment overall.
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