Lyf Australia

Budget Key Points:

* $2.2b for increased GP services, super clinic upgrades, more nurses and electronic health records
* $661m to boost skills training
* $652m for a Renewable Energy Future Fund
* Tax breaks on interest income up to $1,000
* Simplified tax returns
* $1b for Australian Rail Track Corporation and $71m for a Sydney transport hub
* $4.3b national security boost

Forecasts At A Glance:

* $40.8b deficit 2010-11, $13b deficit 2011-12, $1b surplus 2012-13, $5.4b surplus 2013-14
* Growth at 3.14pc for 2010-11, 4pc for 2011-12, 3pc for 2012-13, 3pc for 2013-14
* Unemployment at 5pc for 2010-11, 4.34pc for 2011-12, 5pc for 2012-13, 5pc for 2013-14
* Inflation at 2.5pc across the four years
* Net savings of $544m over four years
* Net debt to peak at 6.1pc of GDP and be paid off three years earlier than expected

The budget at first glance shows no surprises. However when you compare the budget to previous times or expectations, the government still hasn't reduced spending. Instead they're keeping most stimulus reforms until later in the end of the year, despite the Reserve Banks recent trend in rising interest rates from an ever increasing central price index (Inflation).

The budget is being described as a "no frills" political statement. The reasoning because the budget has to go in accordance with the election coming up. Overall the budget is fair. However, it should be noted the flaws inside. First off health care. The acknowledgment of greater beds hasn't been introduced into the argument. Rather we're seeing a push for electronic health records similar to the US and the increase of promised health clinics, a number of 36 extra in which the previous promise had only delivered three according to the health minister. In saying that, the Treasurer Wayne Swan strongly disagrees and says it is "eleven". Even if this is true, the government is still falling behind it's other promises.

The other negative is the mining sector. There is a 40% levy tax on Australia's largest exports. To make this clear this will increase the cost price of Australia's largest commodity. The mining sector rakes in billions. Although it may seem fair to take some profits away from the company's, the increase in tax will raise the real unit labor cost and therefore will have an effect on Trading partners. As the Australian dollar is already at a near high, around 80-90 cents, the pressure of the dollar has already made exports more expensive. If other countries that supply mine resources come to play, Australia may lose its competitive advantage. Overall this downfall will cause a decrease in production which will have a major impact on the Gross domestic product, which as we know if negative in two consecutive quarters, determines a recession. The downfall in the sector may also lead to a decrease in terms of trade. For the government this is detrimental as they're relying on 60 years high to continue to maintain their promise of a surplus. Therefore you can see the good and the bad side of the tax increase for the mining sector. In the event the sector falls like it has lately in the share market, the government may need to alter the tax or reform. Remember the government is hoping that more than $10 billion dollars is collected to fund an increase in super from 9 to 12%. For business it means greater expense but for someone like the younger generation, it could mean for a full time work on a normal wage, more than $150,000 dollars extra in their pockets.

As you can see the government is relying on economic growth. It is also going with the usually unreliable statistics of the treasury. In the event the government is able to maintain the terms of trade and overall GDP, the surplus will be real in the three year target. However, if not the government may be face a downfall in popularity. This will only be seen if the labor government is able to win the next election.