But the tax cuts are not evenly spread, low-income earners will benefit most from the overhaul of family tax payments while middle & high-income earners get the biggest tax cuts.
Older people will get improved incentives to save for retirements, including increasing the Government’s payment from $1000 to $1500 for a $1000 personal contribution & reducing the high-income earners’ superannuation surcharge rate.
The family measures include: relaxing the income test for the benefit, a new maternity payment of $3000 for mothers; an increase of child care places.
The unemployment rate at the moment is 5.6%, with the government aiming for a lower rate. The tax cuts provide incentives for people to find jobs as they are paying less tax & thus increases participation rate & decreases unemployment.
Also the “greying” population is causing deep structural unemployment in Australia; the budget aims to rectify these structural problems through their superannuation reforms & “baby bonuses.”
The budget also aims to update the skills of the structurally unemployment so older workers, parents re-entering the workforce and the disabled will be eligible for 7500 new training places. More than $20 million will be spend this year helping low-income earners and those on income support to upgrade their skills.
The Government will also spend $12million over four years on a Mature Age Employment and Work-place Strategy to raise the number of older people in work, including; providing better access to job Network Services.
The government has said that the fall in unemployment, to a 23 year low is due to lasting improvements.
Years of economic changes has made the economy less prove to booms & busts; which has made steady & sustainable falls in unemployment more possible. Australia is however facing an on set of new long –term pressure from ageing of the population. A report on the Australian economy, has found that the unemployment rate is close to its “structural” limit, which suggested further reforms are required to drive the unemployment rate lower.
The budget includes tax cuts and changes to welfare benefits, which are hoped will boost productivity and participation, by encouraging people to work harder. There is also the issue of the high levels of underutilised labour, which has not been addressed in this budget.
Falls in the unemployment rate have also saved the government money through lower welfare payments.
The government has kept inflation low, with the budget surplus.
Since they want structural unemployment to decrease, a lower inflation rate may be achieved without threatening a short term increase in unemployment as well.
Inflation is forecast to gradually decline to about 1.75%, down from the current rate of 2.25%.
This is due to the budget surplus, where taxation is greater than government spending. This will decrease aggregate demand in the economy as the income of house holds will decrease, therefore their demand for g+s will decrease, so consumption will decrease, therefore demand – pull inflation will decrease, which is one of the five major causes of inflation in the Australian economy.
Exports are expected to rise from 2% - 8% due to the world economy stabilising and US finally recovering from their mild recession. The recovery of the world economy has been strong; this international growth will benefit Australia, especially by boosting demand for exports. While imports are expected to decrease as our domestic activity begins to slow and our consumer confidence dampens due to deflating housing bubble. Since exports are forecast to grow 8% next financial year, and the current account deficit is expected to decrease to 5% of GDP as Australia’s terms of trade improve. The government is providing assistance to regional areas to help increase rural exports.
The decrease in a budget surplus from the previous financial year means that the fiscal stance is mildly expansionary.
Injections are greater than leakages and thus expands the circular flow via the transmission mechanisms and the multiplier effect, thus it increases eco growth.
While the government predicts GDP growth will moderate slightly from 3.75% in 2003-04 to 3.5% in 2004-05.
Australia has around 0.75% higher GDP in both 2003/04 and 2004/05 than the Government forecasts- due to a relatively weaker domestic economy offset by an expected stronger contribution from net exports.
With this much fiscal drag, economic growth has continued because of the private credit binge which has generated record household debt.
As a macroeconomic growth strategy the combination of credit binge and budget surpluses is unsustainable. The meltdown will be fierce if the economy slows a little and households start tightening belts.
The Government is counting on the world economy remaining strong and the housing market staying buoyant.
The budget also includes an aged care package of more than $1.6 billion, a big increase for road and rail infrastructure and higher spending on defence, security and research, a security package to increase the number of intelligence officers, upgrade equipment and allow resourcing in agencies for 24 hours, seven days a week; research funding package of $5 billion over five years for projects designed to provide commercial benefits to scientific research and innovation. It also includes funding for a medical school at the University of Western Sydney.The Government will continue to announce further spending after the budget - such as details of the new road and rail plans - in a bid to build momentum for the election.While the budget has forecast household consumption growth to ease, low unempolyment and the tax cuts and family support payments announced yesterday would help offset the slowdown. Last years budget papers warned world economy could drag australia down but this risk has now disspated.