Economic Overview: PwC Response to the 2012-13 Federal Budget

8 May 2012

The Labor Government's fifth Budget focuses largely on delivering the promised surplus and a reallocation of spending, according to PwC Economics and Policy Partner, Jeremy Thorpe.

"This budget lacks a roadmap for lifting productivity and future economic growth.

"Spending is prioritised on health and social policy spending. A welcome addition is the announced support for the National Disability Insurance Scheme.

This Budget is less focused on structural economic reform, productivity and growth oriented initiatives. It does not substantially address recent concerns that domestic growth is softening, particularly in the non-mining sectors."

"The budget is more about how we carve the pie, rather than how we grow the pie."

With a $1.5 billion surplus, the Government has met its self-imposed primary objective for the 2012/13 Budget.

"There is a real risk that the small surplus may disappear into deficit if revenue growth is weaker than predicted. This is a likely outcome if we see any softening in the economy.

"In any case, it is likely the Budget remains in a structural deficit.

"To get business confidence back the RBA may need to look at further softening monetary policy and the Government to undertake more effective microeconomic and productivity reform outside of the Budget process. Measures could include red tape reduction and the facilitation of greater flexibility in the labour market," Mr Thorpe said.

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