THIS is an election year budget, but with a missing element - an election.
THIS is an election year budget, but with a missing element - an election.
Not only has the government promised to rain down $5 billion in new family payments. It has also announced whole new benefits schemes, for disabilities and for dental treatment.
Typically these are the actions of a government in the year it's going to face the people.
So why do it in the second year of a three-year parliament?
The Gillard government is certainly not planning an early election. That would be political suicide for a government with a primary vote of 27 per cent.
It's a measure of its deep political distress that it feels the need to do all it can to buy the attention and affection of the people so early in the cycle.
The government is worried that if it can't get the disgruntled Labor voter to give it another look now, it might not get another chance.
This budget is Julia Gillard's big, expensive plea for forgiveness - forgiveness for her broken promise on carbon tax. But it's to the government's credit that it has done this while keeping its commitment to return the budget to surplus.
Turning this financial year's $44 billion deficit into next year's $1.5 billion surplus is a serious achievement: ''On time, as promised,'' as Wayne Swan put it. It's a happy coincidence of economic prudence and political need.
The dirtiest words in the world financial markets at the moment are ''sovereign debt''.
By wiping out the deficit, the government puts Australia on track to eliminate its net sovereign debt in 2020-21. A surplus is an ''economic imperative'' in a time of debt phobia, said Swan.
One of the most strident critics of the government's budget performances in the past four years, Stephen Anthony of the consultancy Macroeconomics, was moved to say: ''This is an historic night. This is one of the biggest fiscal consolidations in the history of the Commonwealth.
''It is exactly right for the times,'' with tight budget policy allowing room for interest rates to fall and this, in turn, allowing the dollar to fall.
''This lets the non-mining states grow - South Australia, Victoria, Tasmania and NSW will really benefit from this.''
Prudence happily marries politics the truth is that the government could not have afforded to break yet another promise.
How can it deliver a surplus yet also find $5 billion in new cash payments to lower and middle income families over the next four years and start on new disability and dental schemes?
Partly by a political conjuring trick - by redirecting to families the $4.7 billion that it had intended to give companies in the form of a 1 percentage point cut in the corporate tax rate.
A broken promise perhaps, but it was a promise the government was not going to be allowed to keep. The opposition and Greens had declared they were not going to let it through the Senate.
The losers? They are in four categories. First, companies will lose their promised tax cut. Second, spending is deferred in the voteless constituencies of defence and overseas aid.
Third is the removal of some superannuation and termination benefits from the highest-paid. Fourth is a crackdown on some welfare recipients, notably single parents.
The budget aims, in short, at the prejudices and hip-pocket interests of the working and ''aspirational'' voter that is supposed to be the Labor base.
Will it work?
John Howard spent a lot more than this on cash splashes to buy the electorate's love. But Howard showed that, once lost, the people's love cannot be bought back. Trying Howard's trick is a triumph of hope over evidence.
Frequently Asked Questions about this Article…
How does the budget’s decision to scrap the 1 percentage point corporate tax cut affect companies and investors?
The budget redirected the planned $4.7 billion corporate tax cut to pay for family payments and new schemes, so companies lose the promised tax relief. For everyday investors, that means potential impacts on after‑tax profits and valuations for affected firms, and it underlines that tax policy can change for political reasons.
What are the new family payments and benefits announced in the budget and who will they help?
The government announced roughly $5 billion in new family payments plus whole new disability and dental schemes aimed at lower and middle‑income families. These measures are designed to boost household incomes over the next four years and are funded in part by redirecting the corporate tax cut.
Will the budget return Australia to surplus and what does that mean for interest rates and the dollar?
The budget aims to turn a large deficit (about $44 billion) into a $1.5 billion surplus next year. Commentators in the article say a surplus can allow room for interest rates to fall and for the Australian dollar to weaken, which could help exporters and non‑mining state economies.
Who are the main losers from this budget that everyday investors should be aware of?
The article identifies four loser groups: companies that lose the promised tax cut; programs in defence and overseas aid where spending is deferred; high‑paid individuals who lose some superannuation and termination benefits; and certain welfare recipients (notably single parents) facing tightened rules.
How might the budget affect regional and non‑mining state economies like Victoria or Tasmania?
Analysts quoted in the article suggest the tight budget policy and a resulting weaker dollar and lower interest rates could allow non‑mining states — South Australia, Victoria, Tasmania and NSW — to grow more strongly than they otherwise would, which could present local investment opportunities.
Is this budget politically motivated and why does that matter to investors?
The piece describes the budget as an 'election‑year' style package delivered early in the parliamentary term — a political effort to win back voters after broken promises (including on carbon policy). For investors, politically driven budgets can mean priorities can shift quickly, increasing policy and regulatory risk.
What long‑term fiscal goals does the budget set and how could that influence sovereign debt concerns?
By eliminating the near‑term deficit, the government says it is on track to eliminate net sovereign debt by 2020‑21. Reducing sovereign debt is presented as important in a period of 'debt phobia' and can improve market confidence in the country’s finances over the long term.
Does redirecting corporate tax relief to families signal a change in government priorities and what should investors take from that?
Yes — redirecting $4.7 billion from a corporate tax cut to household payments shows a shift toward supporting working and 'aspirational' voters rather than delivering business tax relief. Investors should read this as a sign the government may prioritise household cash flows over supply‑side corporate incentives, which could alter sectoral returns.
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