Australian Federal Budget - First Reaction

The Australian Gillard Government has unveiled its first Federal budget since its re-election as a minority government in 2010. Treasurer Wayne Swann had a promised a ‘tough’ budget that would be designed to bring the budget back to surplus in 2012-2013.

With two more budgets to deliver before the next election, this budget was expected to be a hard hitting affair where spending cuts would be made across the board to deal with the inequities of what is very much a two speed economy. The irrepressible growth of the Chinese economy has resulted in a natural resources and mining boom that has created thousands of jobs across the country and generated unprecedented tax receipts for the Federal government.

This has meant booming economies for what are colloquially known as the mining states ie Western Australia, Queensland and South Australia. The other states, primarily New South Wales, which has an economy based more on manufacturing have not reaped the benefits of the mining boom.

However, the political constraints of running a minority government and with poll numbers nearly at all time lows, this was never going to be a budget that was as tough as the government’s rhetoric had been in the lead up to the budget.

Increased expenditure on mental health services $2.2 billion and $4.3 billion of investments in regional hospitals, health care, universities and roads will appease the priorities of the independent Members of Parliament who are responsible for installing the Labor government.

$22.2 billion worth of savings have been found across the board, ranging from cuts to defense spending, an of a number of middle class welfare programs and deferral of some infrastructure projects.

Initial response to the budget has been subtly supportive. Hard core economists are calling the budget not tough enough and may add pressure on interest rates in the short term while welfare and health agencies are relieved that cuts didn’t go as deep as they have feared.

Overall this humble correspondent thinks that the budget is a politically smart and fiscally responsible budget that has been delivered in a political environment that is very much based in a damned if you do damned if you don’t paradigm.

The next 24 hours will tell whether the government is on a winner or not as the Prime Minister, Treasurer and various opposition figures hit the airwaves to talk up or talk down the budget. Either way this post will be updated to try and reflect the reaction.