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Federal budget was politically smart but built on hopeful assumptions

Federal budget was politically smart but built on hopeful assumptions
Federal budget was politically smart but built on hopeful assumptions

The budget showed that the Labor government intends to win back its traditional voters by pushing money to households through tax cuts and cash bonuses for school children.

But although the budget seemed politically smart, it was built on assumptions rather than certainties.

The primary assumption is that the current government will still be the government in 2013 and beyond. Some of the accounting tricks and new revenue programs used to put the 2012-13 budget in surplus require that the government who put them in place will still have its hands on the levers.

In the current environment, that’s a hopeful assumption.

Secondly, the improved budget position is expected to come about because of cuts to government spending and an increase in tax receipts driven by next year’s expected growth rate of 3.25%.

Strong growth is going to be driven mainly by the mining sector because sectors such as retail, hospitality and manufacturing are not doing well. Yet many factors can arise to change growth forecasts and it will only take one sector of the economy to stumble – mining – and all bets are off.

Thirdly, there’s a raft of carbon tax-related initiatives that have been factored into the budget estimates but the one to watch is the so-called ‘carbon price’ of $29 a tonne.

This represents revenue to the Commonwealth, but the more I read about this carbon price the more it becomes apparent that it is not necessarily the price that will be paid by businesses. In fact, carbon emissions are currently being traded in Europe at below $10 per tonne and the momentum is for even cheaper carbon prices.

So, $29 per tonne actually being levied on Australian emitters is not a given.

Lastly is the Treasurer’s forecast that official interest rates will decrease into 2013. This will apparently stimulate the economy.

Even if the assumption on interest rates is accurate, it’s not entirely consistent with an economy growing at 3.25%.

When the economy grows at 3.25% and household consumption is growing by 3% (as forecast) the Reserve Bank will act to stop inflation. And that will mean interest rates go up.

And we should all be concerned about the 1% reduction in company tax promised to business owners that the government abandoned on budget night.

If you base the coming-right of the economy on strong growth in 2013, then you’d expect Australia’s 2.7 million small business owners, who employ 60% of the workforce, to play some part in that.

I know that the government places their faith in an ongoing resources boom but that still leaves about 85% of the economy who are flat or going backwards.

Many householders will be happy with this budget, but can I suggest that everyone who receives their schoolkids bonus spend it wisely? The world economy is going through a structural change and our best defence – along with surplus budgets – is an educated population.

Mark Bouris is executive chairman of Yellow Brick Road, a financial services company offering home loans, financial planning, accounting and tax, and insurance. He runs a Q&A session on Twitter every Monday afternoon at 4pm for small business owners using the hashtag #bizQandA.

 

 

Mark Bouris

Mark Bouris

Mark Bouris is executive chairman of Yellow Brick Road, a financial services company offering home loans, financial planning, accounting and tax, and insurance.

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