Wednesday, 9 May 2012

The 2012 - 2013 Australian Federal Government budget: An exercise in class welfare

I normally try and avoid posts which are very specific to one country / region because in fact most of my readers are not from my home country (Australia) but are spread across the world.  However at the same time this is a blog which also tracks my personal finance issues and as such sometimes this is unavoidable so this will be one of those posts. 

Last night the Australian Federal Government released their 2012/2013 budget (see the full budget here) which I confess was not surprising although a little disappointing.  Australia currently has a Labor government which is geared towards lower income and working class voters.  This budget was reflective of that with nearly all of the benefits going to lower income and working families and the costs effectively being bourne by all the other sections of society.  Key benefits provided by this budget include
  • An extra $300 per week in family payments (not something that affects me)
  • An extra $350 per annum for low income individuals as a cost of living allowance (again not affected personally)
  • A significant small business benefit in the form of a loss carry-back which allow losses to be offset against previous years profits to help businesses back to profit.  This is a significant allowance for small businesses (however does not benefit me at the moment)
  • Tax free threshold increased from $6,000 to $18,200 which means that ever working person in Australia will pay less tax (thankfully myself included)
  • An extension of the payments to parents of school children for educational expenses
Given the current political climate in Australia this is an unsurprising result.  I confess that I was actually surprised at where the cuts came from.  I had expected them to come from the high income earners who had no family to speak of (and so did not get any of the benefits).  As I am in that category I was a little apprehensive of this budget.  In fact the largest savings came from:
  • A cancelling of the proposed cut to company tax rates.  With the introduction of the Mining Resource Tax this year, much of the benefits were supposed to flow to pay for a cut in the corporate tax rate from 30% to 28% over the next few years.  This has been cancelled.  Although I think this will impact my share portfolio valuations it should not be too extreme and may be a time to buy if the market over-reacts
  • Massive cuts in defence spending over the next 5 years: I admit that I thought that defence was one area they would never touch but this is where some of the biggest cuts are happening.  I'm not too fussed about this because (other than wanting to be safe) I have no real affiliation with this sector
  • Cuts in public sector spending:  Canberra is going to be affected quite significantly with the significant budget cuts to public sector jobs.  Again this does not affect me a great deal.
If you have a family or are a lower income earner this budget should benefit you significantly.  However if you are like me and are trying to build wealth it doesn't really do anything for you.  Going through the budget in detail helps you understand a lot of what the news articles are about so I recommend this to anyone who is interested to know how their position is likely to change over the next year.

In terms of investing in Australian companies - nothing in the budget should make too much of a difference.  Nearly all the provisions were already flagged well in advance (such as the mineral resource rent tax and the carbon tax) so these have already been priced into the equities.

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