On the evening of May 13, the Federal Government handed down their 1st budget since coming to office. This was a highly anticipated budget given the need to address the ballooning budget deficit at a time when underlying economic environment has only just begun to show the 1st signs of a recovery.
 

The key points were as follows:

    • The move to smaller government, more infrastructure investment and less household dependency on government payments in the out-years.
    • $36 billion of savings measures. There is only modest savings in the first few years as should be the case given the economy’s subdued recovery.
    • The Budget savings are modest in the next few years, but grow as time rolls on and by FY24, if fully implemented, the measures would produce a net savings of AUD271 billion. Gross debt is likely to peak at around AUD389 billion, or 19% of Australian GDP, which is considerably less than the 73% global average.
    • The Budget could delay any RBA rate increase. The reduction in spending it is a positive for the bond market and our AAA credit rating. For shares, lower rates and increased infrastructure spending are positives, but this is partially offset by the likely weighing on confidence and household income growth.
    •  

      Australian Families

      Payment rates for Family Tax Benefit will remain at current levels until July 2016. Tax Benefit A income threshold to be set at $94,316. Only families with four or more children will receive the supplement, saving $377.7 million over four years. From 2015, families will cease to receive Tax Benefit B when their youngest turns six, saving $1.9 billion over five years. Tax Benefit B income test will be lowered to $100,000 from $150,000, savings $1.2 billion over four years. Labor’s school kids bonus, worth $410 a year for primary school pupils and $820 a year for high school students, to be scrapped
       

      Health

      The introduction of a $7 Medicare co-payment for doctor visits spells the end of free GP care for most Australians. Concession card holders and children will escape the payment – but only after their tenth visit, with their annual co-pay capped at $70. $5 of the $7 payment will go into the Medical Research Future Fund. Those who aren’t bulk-billed will also pay more, with $5 coming out of their Medicare refund.
       

      Motorists<

      The Government will look to raise an extra $2.2 billion at the petrol pumps, as the freeze on the fuel excise ends. The changes will cause the price of a litre of fuel to rise by the rate of inflation every six months.
       

      Youth<

      Unemployed people under thirty will now face a six-month wait for benefits, which have also been slashed. University students also face higher, deregulated fees: the Government will bank $1.1 billion from cutting an average 20 per cent from student payments.
       

      Public Servants

      Some 16,500 government employees will lose their jobs, with 4,700 jobs to go from the ATO.
       

      Pensioners

      The pension age will rise to 70 by 2035. Payments are set to grow more slowly, and a range of entitlements will either be eliminated or reduced.
       

      Infrastructure

      The major budget sweetener is a $50 billion infrastructure package, which will be invested in roads, rail, ports and airports over the next seven years. The bulk of the projects in the budget papers were either planned or begun under the previous Labor government.
       

      Medical Research

      The other big sweetener is the introduction of a $20 billion Medical Research Future Fund, which the government is touting as the largest of its kind worldwide. It will bankroll research to develop treatments for diseases such as cancer, diabetes and multiple sclerosis – but it will be partially funded by the GP co-payment.<  

      Working mothers

      The “symbolically” trimmed Paid Parental Leave scheme will pay new mothers up to $50,000.
       

      Business

      Promised tax cuts and big spending on infrastructure will benefit the top end of town, while smaller businesses receive rewards for hiring older workers. Companies will also receive financial assistance to access export markets, manufacturers moving into new growth industries will be eligible for grants, while the energy and resources sector will be encouraged to explore for new mineral deposits.
       

      Defence

      The coalition remained committed to growing government spending on defence to two per cent of gross domestic product a year within a decade, but it will also lose more than 2,000 staff by 2017-18.
       

      Report prepared by Chris Lioutas, Chief Investment Officer, PSK Financial Services
       

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