Federal Budget Snapshot 2008-2009


The Rudd Government’s first budget sought to honour its commitment to wage “War on Inflation”.  With underlying inflation reaching 4.2 percent in the March quarter, well above the Reserve Bank’s inflation target, the Government has delivered a Budget surplus of 1.8 per cent of GDP (well above the 1 per cent target established under the previous Government).

Growth in real spending will be 1.1 per cent in 2008-09, the lowest rate for nine years.  Over four years, the Budget makes savings of $33.3 billion.  Economic growth is forecast to slow in 2008-09 to 2 ¾ per cent.

Treasurer Swan identified four key principles of his first budget:

  • Honouring election commitments;
  • Delivering for working families;
  • Investing in the future;
  • Beginning a new era of responsible economic management, to sustain growth in challenging times.

Key initiatives to deliver these principles include:

  • $55 billion Working Families Support Package.  Initiatives include cutting income tax, reducing the costs of educating and looking after children, making housing more affordable, providing a teen dental plan and making sure that grocery and petrol prices are competitive.
  • $2.4 billion in additional support for older Australians and carers.
  • $5.9 billion over five years in the Government’s Education Revolution, with initiatives in the areas of early childhood education, schools, vocational training and higher education.
  • $2.3 billion over five years to reduce greenhouse gas emissions, and adapt to the unavoidable challenge of climate change.
  • $3.2 billion National Health and Hospitals Reform Plan to work with the States and ensure spending on health reflects the needs of the broader Australian community.
  • To ease bottlenecks and allow infrastructure to support future economic growth, the Rudd Government is providing significant funding for national infrastructure projects through its Infrastructure Australia program.
  • Three new nation building funds – a Building Australia Fund, an Education Investment Fund and a Health and Hospitals Fund will provide around $40 billion for future capital investment in infrastructure, higher and vocational education and health to modernise and reinvigorate the Australian economy.

The Government’s spending initiatives have been offset by rigorous savings.  Savings announced by the Government ahead of the Budget include:

  • $2 billion over 4 years to increase the tax paid on ready-to-drink alcohol;
  • $1.3 billion over 4 years one-off 2 percent efficiency dividend for Government Departments and agencies (excluding Defence);
  • $643 million in various program savings announced by Finance Minister Tanner on 6 February;
  • Increasing the luxury car tax from 25 per cent to 33 per cent.

Further savings announced in the budget include:

  • $5.3 billion saved by cutting additional income tax cuts for those earning over $180,000 per annum;
  • $8.7 billion saved by closing tax loopholes and improving fairness of tax system;
  • $1.1 billion saved by abolishing the access card project;
  • $959 million saved by terminating substandard contract for broadband;
  • $857 million by better targeting Family Tax Benefit B where earner has income of $150,000 or less;

The Government has also announced that it will be deliver its commitment to provide nearly $30 billion in tax cuts, with the first of those to kick in from 1 July.

A comprehensive summary of the Government’s election commitments as they relate to business can be found at: http://ww2.hawkerbritton.com/hawker-britton-media/public-affairs/

Budget Breakdown

Education Revolution

The Government has committed to its “Education Revolution” which includes:

  • $534 million for the provision of 15 hours a week for 40 weeks a year in pre-literacy and pre-numeracy play-based learning for every four year old in the country by 2013;
  • a 50 per cent Education Tax Refund to enable parents to claim a refund for their investment in eligible education items;
  • $626 million to halve HECS for maths and science at university, and halve it again for those graduates who go on to teach maths and science in our schools;
  • $500 million to help universities upgrade and maintain teaching, research and other student facilities;
  • $577 million to improve literacy and numeracy outcomes for students;
  • $2.5 billion for Trades Training Centres for Australia’s 2,650 secondary schools;
  • $1.9 billion to deliver an additional 630,000 training places over four-years across Australia, including up to 65,000 more apprenticeships;
  • $62 million for a National Asian Languages and Studies in Schools program;
  • $1.2 billion for Digital Education to provide every Australian secondary school student in years 9 to 12 with access to their own computer at school or to upgrade the computers they already have;
  • $326 million to create 1000 high-value mid-career research fellowships, valued at $140,000 each, to help retain Australia’s academics at home;
  • $209 million to double the number of Australian Postgraduate Awards;
  • $20 million to establish a National Curriculum Board, working collaboratively through a National Curriculum Board with the States and Territories and the Catholic and independent schools sector.

On infrastructure, the Government has announced the creation of a $20 billion Building Australia Fund in addition to its election commitments, which are to:

  • establish ‘Infrastructure Australia’, a body which will set the agenda for government investment in infrastructure, working collaboratively with the States and Territories, local government and private sector coordinating the planning, regulation and development of key infrastructure;
  • $22.3 billion (over 5 years) in land transport infrastructure to commit to substantial ongoing funding of road, rail and inter-modal infrastructure transport and logistics under AusLink 2;
  • $4.7 billion for National Broadband Network, with an investment of $4.7 billion to connect 98 per cent of Australians to high speed broadband internet services at a minimum speed of 12 megabits per second.

On health, the Government has committed to:

  • A $3.2 billion National Health and Hospitals Reform Plan to improve the delivery of health and hospital services and health outcomes including:
    • Immediate $1 billion to relive pressure on public hospitals;
    • 2,000 extra aged care beds to take the pressure off acute hospital beds;
    • $275 million for GP SuperClinics around Australia to take the pressure of accident and emergency departments;
    • A $600 million national fund to eliminate elective surgery waiting lists beyond clinically acceptable times.
  • $249 million for a National Cancer Plan, funding research, screening and clinical care;
  • $491 million for a Teen Dental Plan;
  • Raising the Medicare levy thresholds (from $50,000 to $100,000 for singles, and from $100,000 to $150,000 for couples).
Supporting business

This Budget confirms the Government’s commitment to a comprehensive agenda of regulation reform – cutting red tape and making it easier for business, particularly small business, to deal with government.  Initiatives include:

  • $251 million over five years to establish Enterprise Connect Innovation Centres to improve innovation and productivity;
  • Significant reduction of withholding tax, reducing the current interim rate of 30 per cent to a final rate of 7.5 per cent for most non‑resident investors.
Climate change

The Government has allocated $2.3 billion over five years to tackle the challenge of climate change.  Initiatives include:

  • $500 million Renewable Energy Fund;
  • $500 million National Clean-Coal fund;
  • $150 million Energy Innovation Fund;
  • $500 million Green Car Innovation Fund;
  • $240 million Clean Business Australia program;
  • $300 million Green Loans program

Budget initiatives for the environment include $12.9 billion for a ‘Water for the Future’ plan, including:

  • $1 billion to attract up to $10 billion of investment in desalination, water recycling and major storm water capturing projects nationwide;
  • $255 million for practical projects to save water in cities and towns;
  • $250 million for the installation of rainwater tanks and other water saving measures;
  • $400 million to buy water from irrigators for the ailing Murray-Darling basin;
  • $2.2 billion over 5 years to better protect, manage and improve the quality of Australia’s environmental systems and natural resources.
Community and welfare

Budget initiatives in the area of community and welfare include:

  • $1.8 billion to provide one-off lump-sum payments of $500 to eligible senior Australians, $1,000 to Carer Payment recipients and $600 to Carer Allowance recipients;
  • $420 million over three years to fund extra aged care and disabled respite places;
  • $274 million to introduce a fairer assessment of the Carer Payment;
  • $4.1 billion over four years to increase utilities allowance, concession telephone allowance and concession travel for pensioners, self-funded retirees and carers;
  • $150 million to lessen homelessness.

Budget initiatives in housing include:

  • $1.2 billion to fund Enhanced First Home Saver Accounts to assist first home buyers to save for a home;
  • $623 million for the National Rental Affordability Scheme to encourage the construction of affordable rental housing;
  • $500 million to establish a Housing Affordability Fund, to reduce costs to home buyers by cutting red tape and reducing the cost of new housing infrastructure.

The Government’s election commitments for defence include:

  • growing the national security budget by 3 per cent on average in real terms per year to 2015-2016;
  • commission a new Defence White Paper to ensure that our expenditures produce the force structure we need for the future;
  • $12 million to trial free provision of basic medical and dental care to ADF and dependants.
Working with the States

The Government is determined to ensure more co-operative relations with the state.  COAG reforms include:

  • rationalising more than 90 specific purpose payments (SPPs) into 5-6 new national SPPS, without reducing overall funding;
  • National Partnership Payments to support the delivery of projects such as roads;
  • a new COAG Reform Fund to disburse NP payments to the States, including from the budget, the Building Australia Fund, the Education Investment Fund and the Health and Hospitals.

What third parties say

Australian Industry Group – 13 May

The Rudd Government’s first budget is well and truly on task. It has taken a hard-nosed approach to spending to address inflation and it makes ambitious investments in nation-building…The Government has backed up its promises in education, personal taxation, in developing business capabilities and in building infrastructure including broadband with sizable allocations over the next few years. This puts money behind a fresh start and should provide the foundation for a much-needed expansion of our national capacity and a lift in productivity.  The Government has the opportunity to build further on these directions with its reviews of taxation, innovation, regulation, industry policies and defence… By more than offsetting new spending with savings and by running a large surplus, the Government has adopted a responsible approach which should be helpful in addressing inflation… It is appropriate that the Government has left open the option of further fiscal tightening down the track.

ACCI – 13 May

The budget presses the right buttons, but could have pressed them harder. The budget is good on infrastructure and workforce skills, and has some good measures on government spending, such as means-testing and welfare targeting. These will kick-start the government’s five-point plan to fight inflation.

National Farmers Federation – 14 May

This Budget combines essential spending on building capacity across key areas that hamper economic growth – where Australia desperately needs to be more astute and efficient – with savings at the margins…It balances concerns that $31 billion in tax cuts may further fuel inflation against spending cuts while, importantly, also targeting investment to boost our climate change adaptation and drought mitigation response, developing and building our trade skills base, overhauling our rundown infrastructure and ensuring water-use efficiency reform is holistic and practical.

John Connor, Climate Institute Chief Executive – 14 May

This budget has delivered a solid start to unlocking the opportunities of a clean energy future. The key challenge remains to ensure that the climate policies and trading scheme due this year have a strong 2020 target.  Strong targets and policies will generate strong dividends to invest in the shift to a clean energy future ensuring that all new electricity load generation is clean.