Budget priorities and overview
The key priorities in the 2008‑09 Budget are to:
- deliver on the Government's commitment to help working families cope with day‑to‑day cost of living pressures through the Government's Working Families Support Package;
- meet the Government's commitment to Australia's future by investing now in education and skills, infrastructure, health and environmental sustainability;
- invest budget surpluses in three new nation building funds — the Education Investment Fund, the Building Australia Fund and the Health and Hospitals Fund. From 2009‑10, these funds will finance ongoing critical investment in higher and vocational education facilities, transport and broadband infrastructure, and hospitals and medical research facilities and projects; and
- usher in a new era of economic responsibility, to deliver a strong budget surplus and reprioritise spending to put downward pressure on inflation and secure the economy against current economic uncertainties.
A responsible budget
Strong inflationary pressures have emerged in the Australian economy in recent years, leading to a tightening of interest rates. Fiscal policy has an important role in supporting monetary policy to bring inflation back under control.
The Government has been highly disciplined in spending, with increases in spending in 2008‑09 on election commitments and other priorities more than offset by savings, through cutting inefficient and wasteful programs and delivering administrative efficiencies. Important initiatives are taken in this Budget to restore fairness and integrity to the tax and transfer systems, to ensure that welfare payments are targeted to where they are needed most, and to underpin the sustainability of public finances.
Building productive capacity
The supply capacity of the economy has not kept pace with strong demand in the face of a surge in the terms of trade. This has been reflected in a build up in inflationary pressures.
The Government is addressing the challenge of high inflation by lifting productivity, expanding participation and investing in infrastructure. Productivity in the market sector has averaged 1.4 per cent per year over the past five years, lower than in any other five‑year period since the early 1990s. By putting in place education, skills and innovation policies that lift productivity, the Government can help ease pressure on inflation, lift Australia's economic growth in the medium term and sustain prosperity into the future.
The Government's practical initiatives to expand participation in the workforce include reducing income tax, improving access to lower cost and better quality child care, improving fairness in the workplace, helping people build up their education and skills, and increasing skilled migration.
The Government is also working with business and the States to take immediate action to expand infrastructure to ease capacity constraints and invest in a better, faster broadband network.
Rewarding working families
This Budget ensures that working families are rewarded for their effort and helps ease cost of living pressures. The Government is helping working families by cutting income tax and reducing the costs of looking after and educating children. The Government is implementing a housing affordability package which makes it easier for families to buy their first home and boosts the supply of affordable housing for rent and purchase. The Government is also taking practical steps to make sure that grocery and petrol prices are competitive.
The Government values the contribution made by older Australians and carers, and is providing much‑needed financial relief to them, including by making payments before 30 June 2008. The Government is also working to close the gap on Indigenous disadvantage, to support the homeless, and to increase overseas development assistance.
Investing in our future
The Government will establish three new nation building funds ― a Building Australia Fund (BAF), an Education Investment Fund (EIF) and a Health and Hospitals Fund (HHF). Subject to final budget outcomes, the Government intends to make initial contributions to these funds from the 2007‑08 and 2008‑09 Budget surpluses, once realised. Including transfers from the Higher Education Endowment Fund and Communications Fund, which will be absorbed into the EIF and BAF respectively, this will provide in the order of $40 billion for future capital investment in infrastructure, higher and vocational education and health to modernise and reinvigorate the Australian economy. This meets the Government's commitment to invest in a National Broadband Network with disbursements dependent on the final outcome of the recently commenced Requests for Proposals process and the Government's consideration of the Glasson Review.
Both the capital and earnings of these funds will be available over time to finance appropriate projects. All projects financed from the funds will need to satisfy rigorous evaluation criteria assessed by independent bodies. Provision for financing such projects has been incorporated into the budget aggregates from 2009‑10 onwards. The Government will make further contributions from future surpluses as appropriate.
Where funds are used to finance projects with the States, they will be channelled to the States through a new Council of Australian Governments (COAG) Reform Fund. The COAG Reform Fund will also channel funding provided in future budgets to the States for recurrent expenditure in areas of COAG national reforms through National Partnership payments.
To ensure that total spending from the funds is consistent with the Government's macroeconomic goals, the Loan Council will provide advice to Governments on whether the proposed spending envelope from the funds each year can be delivered in the prevailing economic conditions without prejudicing the Government's inflation target. The Loan Council will not approve or advise on individual infrastructure projects.
The Government will make an early start to identify suitable projects by funding infrastructure feasibility studies in 2007‑08 with the States on high‑priority projects, with the intention of improving major transport networks and easing congestion.
The creation of the new funds does not prejudice the objectives of the Future Fund, which remains on track to fully fund superannuation liabilities for Australian Government employees by the target date of 2020. The Future Fund Board of Guardians will also manage these three new funds.
The 2008‑09 Budget lays the foundation for a more modern Australian economy. With major initiatives in education and skills, infrastructure, health and environmental sustainability, the Government is investing in Australia's future prosperity.
Making federalism work
Cooperative federalism is an important element of responsible economic management in Australia. Through COAG, the Government is now working closely with the States to deliver better services and produce the right outcomes on matters that affect the daily life of Australians — health and ageing, education and training, climate change and water, infrastructure, business regulation and competition, housing, and Indigenous disadvantage.
The Government is restructuring the system of payments from the Commonwealth to the States, streamlining specific purpose payments and creating new National Partnership payments.
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