Wayne Swan’s 2012-13 Budget has achieved the biggest fiscal turnaround for over half a century—turning the $44.4 billion deficit upside-down into a slender surplus of $1.5 billion, seemingly all without the expected pain and suffering.
That is not to say the $45.9bn (3.1 per cent of GDP) materialised from thin air—cuts and sacrifices were made, albeit flying under the radar of most people. Savings totalling a whopping $33.6bn were made.
The defence budget bore the largest weight, copping a $5.5bn budget cut over the next four years. Other savings included scrapping plans to cut company tax by 1 per cent and deferring the scheduled increase in foreign aid. These 3 measures alone produced $13.2bn in savings—all of which probably are unlikely to create a lot of fuss.
High-income earners are likely to create most of the commotion. The super of those earning more than $300,000 a year will now be taxed at double the rate at 30 per cent. Foreign executives will face tighter tax laws. And the private health insurance rebate will now involve a means-test for singles earning more than $83,000 and families earning more than $166,000. Sure enough, this won’t help Labor’s already weak voter base in the high income demographic, but it'll save over $3.4bn, which will prove clinical when the real budget figures come out in September 2013.
High-income earners may not like the scorecard, but Mr Swan’s budget will attempt to pull the heartstrings of their voter base of lower to middle income workers—the “working families”—to gain their trust once again. With the Government facing overwhelming political pressures from the people, Mr Swan took a page from ex-Liberal Party Prime Minister John Howard’s 2001 budget and engaged in a spending splurge directed straight to their voter base.
Middle to low-income earners facing higher costs of living and the omnipresent fears of the carbon-tax can now sleep easier as the Government sets up cash benefits to compensate for these worries.
“We understand the pressures Australians face, paying for electricity, housing, groceries, petrol or even a simple family outing,” Mr Swan said in his Budget speech. “That’s why we’ve gone into bat for working families.”
The tax-free threshold is set to triple to $18,200 and cuts for those earning less than $80,000 will be made from July this year. The centrepiece of Mr Swan’s budget initiatives is captured in the popular Labor party rhetoric of—“Spreading the Benefits of the [mining] Boom”. And with the $5bn saved by maintaining the current company tax rate (which was supposed to be funded by the mining tax), Mr Swan moved that to increasing the Family Tax Benefit Part A, offering a “supplement” to students, jobseekers and parents with young children with a new “Schoolkids bonus”.
While many analysts think this extra spending could probably be used in more effective ways, such as investing to promote productivity, paying off debt or aiding companies struggling from the patch-work economy, instead, the Government has opted for a budget aimed to win over the people that have become disillusioned with the party.
Together with “working family” benefits, Mr Swan also managed some room for health schemes. Over the next four years, $1bn will be invested in the National Disability Insurance Scheme(NDIS). The NDIS is set to benefit 20,000 people by 2014-15. Dental Health is set to grab $346m to reduce waiting time and in total, 76 new health care infrastructure projects were added to the agenda.
The 2012-13 Budget puts together some impressive and relatively painless cost-saving measures, adding in some wins for middle to low-income earners.
“On time, as promised,” said Treasurer Wayne Swan, “and surpluses each year after that.”
Whether the budget surplus sticks will be seen in September next year, but for now, Treasurer Wayne Swan can breathe a sigh of relief.
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