KEY POINTS:
Australian Treasurer Wayne Swan last night unveiled a tight Budget that hits hip pockets in the country's boardrooms and affluent middle-class suburbs, but provides tens of billions of dollars in strategies to reposition the economy.
While increases in Government spending have been severely pruned and savings redirected to
a huge A$55 billion ($67.5 billion) families package for low- and middle-income Australia, Swan has provided direct funding and incentives for huge new programmes in infrastructure, housing, education, health and the environment.
He has also moved to boost Australia's ambitions as a financial services hub by reducing existing withholding tax rates for foreign investors from approved countries, reviewing taxation arrangements for managed funds, and planning to boost financial market stability through greater transparency of covered short selling.
Swan further confirmed the Government's intention of a full review of the nation's taxation system.
His first Budget - and Labor's first in 13 years - was framed against powerful, opposing forces driving up prices for Australian exports and increasing inflation at home.
"Robust growth in emerging economies, particularly China and India, is expected to drive further large rises in Australia's terms of trade, boosting income and price pressures," Swan said.
"The terms of trade are anticipated to rise by over 20 per cent by the end of the year - the largest increase in a generation, lifting nominal economic growth to 9.25 per cent, the highest rise in 19 years.
But Treasury forecasts show that while exports are expected to surge by 6 per cent in 2008-09 - mainly from commodities - healthy business investment is at risk from further rises in interest rates, wages and other costs, and from the potential for more upheaval in global capital markets.
Real growth in gross domestic product is forecast to slow to 2.75 per cent, with employment falling and the jobless rate expected to rise to 4.75 per cent by this year's June quarter.
And inflation - Swan's primary target - is forecast to remain outside the Reserve Bank's target zone.
His strategy has been to prune back spending and hold the real increase in federal outlays to 1 per cent next financial year, redistributing A$33 billion in savings over four years to family and other key programmes. The targeted 2008-09 surplus is A$21.7 billion - 1.8 per cent of GDP, and the largest in those terms in almost a decade.
A significant part of these savings included what Swan said was his toughest decision: the decision to means-test family tax and childcare benefits, and the "baby bonus", effectively removing them from people earning more than A$150,000 a year. He also targeted taxes on luxury cars, tightened fringe benefits tax rules and cracked down on employee share schemes.
"We were not elected to be popular," Swan said."We were elected to do the right thing by the country."
Swan emphasised long-term planning to escape the traditional constraints of a three-year electoral cycle, locking the economy into sustainable surpluses and spending beyond the present resources boom.
He announced a Building Australia fund with initial funding of A$20 billion to finance crucial infrastructure, including roads, rail, ports and broadband required for economic development but beyond the resources of states or the private sector.
The Budget also allocated A$271 million to improving infrastructure and services in regional Australia, and provided A$623 million over four years to encourage construction of low-cost rental housing, offering developers A$8000 a year for 10 years for each new dwelling rented out at 20 per cent below the market rate.
Environmental programmes, pushed by Australia's ratification of the Kyoto Protocol on climate change, will include a carbon emissions trading scheme and the mandatory supply of 20 per cent of national energy requirements from renewable sources by 2020.
Funding for this strategy in last night's Budget included more than A$1.5 billion for renewable energy technologies, the development of "clean" coal, the development of low-emissions cars, and environment-friendly business practices.
Swan also unveiled a A$12.9 billion, 10-year national water programme that includes A$1 billion to attract investment in desalination, water recycling and major stormwater capturing projects.