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Buoyancy gives Budget foundation

THE fourth Costello Budget was an interesting one from a number of points of view.

Customarily, it has become almost mandatory that a post-election budget is a big spending budget that allows governments time to recover that before they need to go to the people again.

This one was very different.

The budget was predicated on the buoyancy of the growth we have seen in the Australian economy over the past 12 months, to create a scenario where revenue was stronger, to fund a greater expenditure in the areas of education, health and the aged without affecting the underlying surplus.

The surplus has come in lower than anticipated for 1998-99.

The market had been looking to see a surplus of around $5 billion but this surplus is $3.1 billion. However, the surplus for 1999-2000 is closer to the $5 billion mark.

This is predicated on two important factors.

The first of these is the sale of a further 16 per cent of Telstra next year and a further 16 per cent the following year.

The proceeds of these sales would be used to retire the government debt.

The next thing the budget is predicated on is the successful passage of the tax reform legislation. This is dependent on Brian Harradine and his vote in the senate.

To aid his decision making in this regard, there are two measures that assist the Tasmanian economy and the children of Australia.

In summary form, the measures are as follows:

• Increased education spending with programs for literacy and numeracy skills training

n Suresh Rajan



THE fourth Costello Budget was an interesting one from a number of points of view.

Customarily, it has become almost mandatory that a post-election budget is a big spending budget that allows governments time to recover that before they need to go to the people again.

This one was very different.

The budget was predicated on the buoyancy of the growth we have seen in the Australian economy over the past 12 months, to create a scenario where revenue was stronger, to fund a greater expenditure in the areas of education, health and the aged without affecting the underlying surplus.

The surplus has come in lower than anticipated for 1998-99.

The market had been looking to see a surplus of around $5 billion but this surplus is $3.1 billion. However, the surplus for 1999-2000 is closer to the $5 billion mark.

This is predicated on two important factors.

The first of these is the sale of a further 16 per cent of Telstra next year and a further 16 per cent the following year.

The proceeds of these sales would be used to retire the government debt.

The next thing the budget is predicated on is the successful passage of the tax reform legislation. This is dependent on Brian Harradine and his vote in the senate.

To aid his decision making in this regard, there are two measures that assist the Tasmanian economy and the children of Australia.

In summary form, the measures are as follows:

• Increased education spending with programs for literacy and numeracy skills training

• Increase in family assistance

• Lifetime Health Cover with age-based premiums being offered

• Increased coverage of the Work for the Dole scheme

• Increased funding for medical research

• Promoting Australia as a regional financial services centre.

The assumptions that the Budget is based upon are as follows:

• Economic growth to come in higher than forecast at 4.25 per cent for 1998-99 and dropping to 3.5 per cent in 1999-2000

• Current account deficit to run at 5.25 per cent of GDP

• Unemployment to remain at 7 per cent in 1999-2000

• Inflation to stay at 1.75 per cent in 1998-99 and remain around 2 per cent to 2.5 per cent till 2001-02

• Interest rates to remain low.

The forecasts are generally uncontroversial. The main risk area is the forecast for the current account deficit.

The government forecast means that the deficit would need to remain below 6 per cent of GDP in every month.

In recent years, this has been a fairly difficult task to achieve.

All in all, the budget was relatively simple and did not carry any surprises.

Most of the measures had been leaked to the market over the past few weeks and appeared to be as expected.

The use of stronger economic growth will please business.

The most important measure the market will take great heart from is that for the first time we have a budget that works on an accrual system.

This brings it into line with accepted accounting principles and will in time make the budget more transparent – something the Howard Government prom-ised us some years ago.

Secondly, the government’s stated intention of retiring government debt from the sale of Telstra will also please the business sector.

The lack of attention to the current account deficit will place a little pressure on the Australian dollar.

However, it is generally felt the recent rally has been too strong anyway.

Overall this is a budget that will please most sectors of the economy.

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