Federal Budget 2012 – A Preview

Federal Budget 2012 – A Preview

What is the Budget?

The Budget is the Government’s annual financial report. It outlines planned expenditure, and comprises the Treasurer’s speech, the main appropriation bills allowing the allocated spending of public money and other legislation to bring about financial proposals in the Budget Speech.

Producing a surplus is no easy feat. Photo: Alex Ellinghausen


Treasurer Wayne Swan has promised a surplus in this year’s federal budget, fulfilling a pledge he made two years ago when growth forecasts favoured a 2012-13 surplus. The projected $1.5 billion surplus has been undermined however by former Treasury modeller Stephen Anthony’s consultancy, Macroeconomics, which estimates an $8billion deficit instead, based on the Government’s November mid-year update. They cite a further $10billion must be cut to deliver a surplus, and $15billion to deliver a structural surplus. KPMG identifies the 3 structural factors governing the budget’s underlying economic motives to be a decline in the tax to GDP ratio, increased household savings and lower consumption, and the long-term decline in productivity.

Labor remains faithful to its initial promise, but a $150billion revenue fall in the five years to 2012-13 and a $40billion deficit for 2011-12 has put immense pressure on Swan. However, a low unemployment rate, huge investments in the pipeline, decent consumer spending and steady inflation are the positives that the treasurer ticks off.

Nonetheless, Tim Colebatch, an economics editor for The Age, is disillusioned with the 3.25% economy growth forecasted by the budget. Much of this relies on an optimistic estimate of $120billion in mining investment; an area in which Colebatch believes will slow down since Australia’s high dollar will discourage firms to base big mining projects here.

As to the political implications, Michelle Grattan, political editor of The Age believes that Julia Gillard “is unlikely to get much political mileage from the budget”, the opposition on the other hand is prepared to expose the surplus as delusion and criticise public expenditure cuts, but will also need to be able to explain what savings the coalition can make. Meanwhile the Greens have continuously touted Labor’s focus on delivering a budget surplus as economically irresponsible.



Recent news media surrounding the Budget has largely focused on expenditure cuts. Four billion dollars have been cut from Defence, delaying the purchase of F35 joint strike fighters and a submarine upgrade. Some welcome this decision, believing that Australia Defence often fails to answer the fundamental question of what weapons will be used for, before hasting to buy them. Others however see it as a compromise to national safety, and worse, a downgrading of Australia’s defence ability.

With regards to health, subsidies for natural therapies will most likely be cut, and the government is expected to target cosmetic genital surgery in a bid to reduce public spending on Medicare. Half a billion dollars however will be devoted to providing dental care to the poor, and another $170million will be used to commence groundwork for a national dental scheme funding more graduate training places, and paying dentists to relocate to remote areas.

Foreign aid will also face a potential reduction in spending, as the Gillard government is likely to stagnate Australia’s funding at 0.35% of Gross National Income this year, despite possibly throwing the nation off-course from achieving Kevin Rudd’s 0.5% target by 2015-16.

Parent Support Payments will be cut to save $700million on the budget. Unemployed single parents will lose payments when their child turns 8 (previously 16), unemployed couples, when their child turns 6. Welfare groups have attacked the government for building a surplus on the nation’s most needy.

Arts Minister, Simon Crean’s national cultural policy will also be shelved, with no spending allocated to it from the upcoming budget.

Furthermore, the mining industry fears that the diesel rebate will be scrapped, and other big businesses are also likely to face cuts in order for the government to deliver a $300million tax relief package for small businesses.


Further Reading

KPMG on the economic factors underlying the federal budget, http://www.kpmg.com/AU/en/IssuesAndInsights/ArticlesPublications/Pages/tax-perspectives-economic-drivers-underlying-federal-budget.aspx?ch=kpmgautw

Ross Gittins on how creative accounting can help the Government conjure its self-imposed surplus, http://www.smh.com.au/business/federal-budget/drum-roll-please-for-a-skimpy-fitout-you-wont-believe-20120504-1y43x.html

Graham White on the collision of monetary and fiscal policy, http://theconversation.edu.au/cutting-rates-then-tightening-fiscal-policy-trying-to-make-sense-of-the-quest-for-a-surplus-6816

ABC1 will broadcast the Treasurer’s Speech live from parliament at 7:30pm on Tuesday, followed by a budget special hosted by the ABC News team with guests including Swan and shadow treasurer, Joe Hockey.