FEDERAL BUDGET 2011: Swan stays on track to meet surplus promise with “patchwork” Budget

Federal Treasurer Wayne Swan has highlighted the struggle many SMEs and households are facing in Australia’s “patchwork” economy in delivering a tight budget that seeks to deliver a series of relatively cheap measures across a range of sectors and one major initiative – a $3 billion, six year plan to increase workforce participation and skilled worker numbers.

Swan’s fourth budget also takes another step towards helping the Government keep its promise of getting the budget back into surplus in 2012-13, with the resources set boom set to erase deficits of $45.7 billion in 2010-11 and $20.3 billion in 2011-12.

The Government is tipping a budget of $4 billion in 2012-13, although Swan said he understood that the prosperity being delivered by the second round of the resources boom was not being felt throughout the economy.

“For some, talk of an investment boom seems divorced from reality. Wages are growing, yet many live pay cheque to pay cheque.

“Unemployment has a four in front of it, yet some household have never had a breadwinner. The economy cries out for workers, yet too many are left behind, unwilling or unskilled – and untouched by the dignity of work.”

While the Government’s election promise of returning the budget to surplus in two years’ time left Swan with little room for a major spending spree, promises of savage budget cuts failed to materialise.

Instead, the Government has managed to unveil a series of smaller initiatives that should help small businesses. These include:

• The previously announced $5,000 up-front tax break for motor vehicle purchases made by companies with less than $2 million in turnover. This will cost the Government $350 million over the next four years.
• A new $34 million program to help Australian suppliers get involved in Australia’s major resources projects.
• Increased funding of $60 million for venture capital for renewable energy.
• A change to the way quarterly income tax payments are made that will reduce payments made by small businesses in 2011-12 by $700 million. The payments will be made up over 2012-13.
• Another $7.1 million in funding for the small business support phone line.

While these are all solid initiatives, none will have entrepreneurs leaping for joy – particularly when the biggest initiative, the $5,000 write-off for vehicle purchases – has been paid for by the dumping of the Entrepreneur’s Tax Offset, which Swan described in his budget speech as being “narrow”.

In fact, the best news for business – and the centrepiece of this budget from a business perspective – is the $3 billion plan to help solve Australia’s skills crisis and improve workforce participation.

At the centre of the plan is an entire new government agency, the $558 million National Workforce Development Fund. The body has been charged with delivering 130,000 new training places over four years and will partner with industry to deliver the sort of skills businesses need.

The Government says industry will bid into the fund to secure matched funding to train current or prospective workers – small businesses will apparently receive extra assistance.

In addition to this, there is $100 million for training apprentices, $101 million for mentoring and supporting them and $1.75 billion in funding for the nation’s vocational education system.

There is also money for literacy and numeracy programs, support for the very long-term unemployed and $80 million for the training of single and teenage parents.

There is good reason for the big focus on training and workforce participation – Swan knows he will need every worker he can get.

The budget predicts unemployment will shrink to 4.5% by 2012, creating another half a million jobs and putting great pressure on Australia’s supply of skilled workers.

By acting now, Swan is hoping he can head off a looming skills crisis – and win back Labor’s core constituency.

“The purpose of this Labor Government, and this Labor budget, is to put the opportunities that flow from a strong economy within reach of more Australians,” he said in his budget speech.

“To get more people into work, and to train them for more rewarding jobs. So that national prosperity reaches more lives, in more corners, of our patchwork economy. “

In the lead-up to the budget, the Government went out of its way to let voters know that it understood that many were struggling with patchy economic conditions and Swan rammed it home in his budget speech.

“Our patchwork economy grows unevenly across the nation. Natural disasters have devastated families, cities and towns. The high dollar hurts tourism and many manufacturing industries, especially small business.”

The growth might be uneven, but it’s also relatively impressive.

The Government is expecting GDP growth with accelerate from 2.25% in 2010-11 to 4% in 2011-12, before dropping back to 3.75% in 2012-13.

Soaring growth will see the unemployment rate dip from 5% this financial year to 4.5% in 2012-13.

Happily for the Reserve Bank of Australia, inflation is expected to dip to 2.75% in 2011-12, rising back to 3% in 2012-13.

The strong fiscal position won’t be achieved without a little bit of pain and the Government will make $22 billion worth of cuts over the next four years.

Major savings include the deferral of infrastructure projects, a pause in the indexation of upper thresholds for family tax benefits and a clampdown on fringe benefits taxes for company cars, which will save $953 million.

Other major initiatives included in the budget include $4.3 billion in investments for regional development over four years, $2.2 billion for a new mental health initiative and $1.2 billion to pay for the bringing forward of the low income tax offset for low-paid workers.

The Government will also spend $1.7 billion over the next two years on natural disaster recovery and rebuilding, which will be funded by a new levy that comes into effect from July 1.

One area not covered in any great detail by Swan’s budget is the impact of the Government’s plan to price carbon from 2012.

While the wrangling over setting the carbon price and determining compensation for business and households has barely started, this issue looms as one that will have a huge impact on next year’s budget.

Swan will no doubt be hoping the patchy economy has picked up speed by then, giving much more room to move than he had this year.