Budget 2010: Fiscally Responsible with Few Sweeteners
12 May 2010
The Labor Government's third Budget, characterised by prudent fiscal management, focuses on reducing debt and securing future economic growth, with few surprises or sweeteners for business in an election year says PricewaterhouseCoopers."The 2010 Budget provides a brighter outlook for the speed of recovery in the Australian economy than previously anticipated," says PricewaterhouseCoopers Partner and Economist Scott Lennon.
"Real spending growth is contained at 2 per cent a year, or 4.5 per cent nominal growth, which exceeds wages growth and should be achievable without significant pain," adds Lennon.
The announcement of a $652 million renewable energy fund and a reduction in tax on interest income on savings, while surprising, will be well received by the energy and financial services sectors.
"The brighter outlook and stronger growth assumptions are good news but we caution that the projections assume problems in European economies will have minimal impact on Australia and this warrants close monitoring over the next six months," adds Lennon.
A PricewaterhouseCoopers (PwC) team of specialist business advisors comment on the content and implications of Tuesday's 2010 Federal Budget.
Economy
The Budget forecasts the economy will grow at a rate of 2 per cent in fiscal 2010, spurred by the government's fiscal stimulus package. This is predicted to accelerate to a 3.25 per cent growth rate in 2011, and to 4 per cent in 2012."Even more impressive is the nominal GDP result, which is forecast to grow by 8.5 per cent in FY11, largely driven by substantial increases in the terms of trade," adds Lennon.
Economic growth in fiscal 2011 will be driven by a 7 per cent increase in overall business investment - especially machinery and equipment, as well as mining related construction.
"Hopefully the Resource Super Profits Tax does not delay or deter business investment," says Lennon.
The Budget forecasts signal that unemployment will fall from its mid-2009 peak of 5.8 per cent to 4.75 per cent in mid 2012. Net Government debt will peak at a substantially lower $94 billion, or 6 per cent of GDP in FY12, compared with the 9.6 per cent forecast last year.
The Treasury forecasts a $40.8 billion deficit in FY11 ($5.9 billion better than forecast last year) returning to surplus of $1 billion in FY13.
Lennon says, "Arguably we could have shaved costs a bit harder and reached a balanced budget by FY12 instead of the projected $13 billion deficit."
Climate Change & Sustainability
PricewaterhouseCoopers Executive Director Andrew Petersen says, "The surprise in the 2010 Budget is that even though the Government has yet to legislate a price on carbon, it has found renewed energy to continue moving towards a low carbon economy."The Government has signalled a new approach to climate change with the introduction of the $652m Renewable Energy Future Fund and the Skills for Sustainable Growth strategy funding.
"While the government's climate change policy is a paler shade of green, the government's 2010 Budget puts an initial down payment on innovation and jobs for the renewable energy sector."
Savings
Hugh Harley, Financial Services Leader, PricewaterhouseCoopers says, "The reduction in tax on interest income of up to $1,000 is a positive first step towards lowering high real tax rates on bank deposits.""However, being a capped arrangement, it will only have a relatively small impact in increasing the overall pool of new savings."
Financial Services
Mr Harley adds, "The various reductions in interest withholding tax will also give financial institutions, particularly foreign-owned entities, greater scope to access overseas funding at lower cost. This is a net positive for competition.""Unfortunately the changes won't apply until 2013-14. It would have been much better for these reforms to commence immediately."
"Likewise, the simplification of prospectus requirements on vanilla corporate bonds will foster activity in this market and provide enterprises with additional flexibility in meeting their future funding needs."
Primary healthcare
Mary Foley, National Health Leader, PricewaterhouseCoopers, says the Budget's health initiatives are "an innovative approach and potentially an important step on the path to putting patients at the centre of healthcare, addressing the needs of an ageing population and the challenges of chronic illness."The measures announced will provide:
- Better access to GPs, especially in rural and remote areas. There will be 23 new super clinics and $355 million spent on upgrading 425 facilities.
- Investment in practice nurses and nurse training with an injection of $523 million over four years, $390 million of this to better utilize practice nurses.
- A $467 million investment in individual electronic health records. Questions still remain over the platform that will support this project.
Pharmaceuticals
PricewaterhouseCoopers Partner John Cannings says, "The pharmaceutical industry has been pragmatic in its response to the economic climate and healthcare challenges facing Australia.""The industry's initiative produced an historic agreement that will deliver $2.5 billion in savings to the government over the next four years."
"These savings provide the industry with certainty which in turn will promote innovation and the listing of new drugs on the Pharmaceutical Benefits Scheme."
Infrastructure
PricewaterhouseCoopers Partner and Economist Scott Lennon says, "New infrastructure spending announcements were well targeted but somewhat lighter than previous years as the focus shifted to swiftly returning the budget to surplus.""Hopefully in the coming months we will see some new Government investment in highway upgrades and urban rail projects to support the focus on improving productivity growth in the Australian economy."
"The $1 billion equity injection for Australian Rail Track Corporation for the renewal of rail networks will be achieved by the innovative use of an equity injection approach, meaning this investment doesn't impact the budget bottom line."
"The $71 million for Moorebank Intermodal Terminal will reduce the quantity of trucks moving through our largest city. This is largely funding to support planning and relocation of Defence Department facilities and the precursor to the more important laying down of new hard rail assets."
About PwC
PricewaterhouseCoopers provides industry-focused assurance, tax, and advisory services to build public trust and enhance value for its clients and their stakeholders. More than 163,000 people in 151 countries across our network share their thinking, experience and solutions to develop fresh perspectives and practical advice.'PricewaterhouseCoopers' refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.
Of further interest
