2012 Federal Budget – Benchmark Snapshot

This Federal Budget has been widely commented on as a political budget with the aim to win back some Labor voters to the Government.

The $1.5 billion surplus cash surplus for 2012/2013 is micro thin. It may not even be delivered. Last year’s Budget forecast of a $12 billion deficit was actually a $44 billion deficit. The announcement of increased borrowing by the Government of $35 billion next financial year and lifting the borrowing debt limit by $50 billion to $300 billion needs to be put in context with the $1 billion forecast surplus.

The deferral and cutting of expenditure of Defence and Foreign Affairs for one year and bringing forward expenditure for next year 2012/2013 into this year 2011/2012 is nothing more than creative accounting.

The deferral of the undertaking to re-instate the $50,000 concessional contribution limit to Super from $25,000 in 2012/2013 for account balances less than $500,000 for 2 years is a short term gain but will be a long term cost to the Government by way of more funding requirements for retirement incomes.

The spending on education costs for families of $410 and $850 being paid directly into bank accounts is likely to be used for areas other than education.  Precedence to other household bills and spending in shops are likely. Sadly some will be wasted on alcohol, drugs and gambling. It would have been better to be paid to schools directly as a credit that could be used for school expenses and clothing.

The Budget is not designed to grow the economic cake for us to all benefit from. It is merely carving it up differently by taking from some and giving to others.

Some Government spending will help with the cost the Carbon Tax will have on the economy, including electricity prices. Single aged pensioners will get a $210 additional lump sum payment and aged pensioner couples $175 each. Additional spending of $3.7 Billion on aged care services over 5 years is a good item.

A surplus budget is a very good thing to achieve, although a forecast is one thing and delivering it is another matter. The worrying part of an increase in Government borrowing is that interest costs on a potential $300 billion debt will be $18 billion pa, based on 6% an interest rate, until the debt is paid back. This is not a good legacy for the future generations of taxpayers to fund when there are now more people retiring from the working force than entering it.

Australia however is in a very strong financial position and can sustain future financial shocks whenever they occur. Hopefully future Governments will be able to wind back this debt and leave a better financial legacy for future generations.

CLICK HERE to read the Benchmark Consultants 2012 Budget Snapshot

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