Government charts its course towards a return to Budget surplus

Canberra was buzzing yesterday as the Gillard Government handed down the 2011-12 Federal Budget to an audience of stakeholder groups, influencers and media commentators.

The 2011-12 Budget has unrealistically high expectations of the commodities boom to deliver major upward revisions to tax revenues over the four year period of the forward estimates.

One component of the projections that I am cautious about is our return to surplus in 2012-13, which has been built on quite optimistic assumptions about the strength of our non-mining sectors over the next two to three years. I think there is currently some 'softness' in the manufacturing, services and retail sectors that might continue for the next two years and beyond.

Overall, the budget contained very few surprises or measures that the public were not aware of ahead of Budget night.

Some of the most interesting announcements related to:

• Changes to the tax laws to provide incentives for private sector investment in infrastructure
• Reforms to the way in which fringe benefits tax is applied to salary-sacrificed motor vehicles
• The abolition of the low income tax offset for non-earned income distributed to minors.

All of these measures have policy merit in different ways and should therefore be supported.

One measure absent from the Budget was the creation of a permanent natural disaster relief fund, which is what the Institute had recommended to the government in order to alleviate the need to implement one-off taxes like the recently legislated flood levy. The government still has an opportunity to consider this advice ahead of the October tax forum.