1. What state are we in?
Comments on the 2012-13 Federal Budget
9 May 2012
Professor Ian Harper
Deloitte Access Economics

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Source: Deloitte Access Economics; Budget Statement No 2
2010-11 2011-12 2012-13 2013-14
GDP growth – Budget (%) 2.0 3.0 3.25 3.0
GDP growth – DAE (%)
2.0 2.9 3.2 3.5
Unemployment – Budget (%) 4.9 5.25 5.5 5.5
Unemployment – DAE (%)
5.1 5.3 5.5 5.5
CPI – Budget (%)
3.6 1.25 3.25 2.5
CPI– DAE (%)
3.1 2.6 3.2 2.8
Wages – Budget (%)
3.8 3.5 3.75 3.75
Wages– DAE (LPI)(%)
3.8 3.6 4.0 4.2
Current account balance - Budget
-2.4 -3 -4.75 -6
Current account balance – DAE
(% of GDP) -2.4 -2.7 -3.9 -4.3
A ‘beautiful’ set of (aggregate) numbers

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Source: Budget Statement No 1
But they conceal the two-speed economy

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Source: RBA 1861-2009, Maximising growth in a mining boom, (2011) Ed Shann, 2009-2014.
Unprecedented boom in mining investment

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The ‘Brisbane Line’
North-west of Brisbane Line
20% of employment
53% of investment projects
South-east of Brisbane Line:
80% of employment
47% of investment projects
Source: ABS 6291.0.55.001, Deloitte Access Economics’ Investment Monitor

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• The Budget is projected to return to surplus in 2012-13
– a 1.4% of GDP increase in revenue and a 1.0% of GDP decline in
expenditure, one of the sharpest fiscal contractions on record
The Budget and the two-speed economy - 1
Source: Budget Statement No 1

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Source: IMF world economic outlook, Treasury
Debt and deficits

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• Spreading the benefits of the boom
– Increase in Family Tax Benefit Part A
– New supplementary allowance for people on income support payments
– The new Schoolkids bonus
– Lifting the tax free threshold from $6,000 to $18,200
• Helping business to invest
– Carry-back tax losses
– Tax breaks for small business (but delaying company tax break of 1%)
• Building a more productive workforce
– National Partnership Agreement on Skills Reform
– New skills measures to assist mature age workers
• Building productivity by investing in infrastructure
– Duplicate the Pacific Highway by 2016
– $350 million per year for Roads to Recovery program
– $232 million towards the Torrens and Goodwood rail project in Adelaide
The Budget and the two-speed economy - 2

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Source: Reserve Bank of Australia; Australian Stock Exchange
Implications for monetary policy

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• Will the projected Budget surplus actually materialise?
• Will the planned fiscal contraction do more harm than good to the
non-resource sectors of the economy?
• Will conditions in Europe deteriorate to the point that we need further
fiscal stimulus?
• Will commodity prices fall sufficiently to slow even the resources
sector of the economy?
• Will the Budget boost the confidence of the cautious consumer?
Unresolved questions

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