Statement 1 - Budget Overview - Meeting our commitments to Australia's future

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Meeting our commitments to Australia's future

The Government is meeting its commitment to Australia's future by investing in education and skills, infrastructure, health and hospitals and environmental sustainability.

Funding for the future

The Government will invest funds from the 2007‑08 and 2008‑09 surpluses in three nation building funds — the Building Australia Fund, the Education Investment Fund and the Health and Hospitals Fund — to finance transport and broadband infrastructure, higher education and vocational education and training facilities, and health, hospitals and medical research facilities and projects.

Education Revolution

Education and training are crucial to Australia's economic and social future. Targeted and sustained investment in high quality education contributes to improved economic growth. By helping lift productivity and participation in the economy, education also provides individuals with greater freedom and capacity to take up employment opportunities throughout their lifetime.

In recognition of the importance of education outcomes and the need to improve the quality of training and the skill level of the Australian workforce, the Government committed to an Education Revolution. This Budget implements a range of early actions to ensure a solid foundation for a long‑term education reform agenda.

The Government's plan to improve education and training covers the whole system, from early childhood education to universities. The Budget includes funding of $5.9 billion over five years, focusing on election commitments that will lift educational outcomes and ensure that all Australians have the opportunity to take up further education or training.

Key initiatives in this Budget include:

$115 million over four years to build the first 38 of 260 planned child care centres in priority areas. The remaining 222 centres will form part of a National Partnership agreement with the States ;
$534 million over five years to provide a universal preschool year for all four year old children. By 2013 all four year olds will have access to 15 hours a week of play based learning, delivered by a degree qualified early childhood teacher, for 40 weeks per year;
$577 million over four years to improve literacy and numeracy outcomes for students in Australian schools, following the Government's commitment for a National Action Plan for Literacy and Numeracy;

Details of supporting initiatives are to be finalised during 2008 with the States and non‑government school systems;

$1.2 billion over five years to provide up to $1 million per school to deliver computers and communications technologies to all students in Years 9 to 12, as part of the Government's Digital Education Revolution;
$2.5 billion over ten years to provide secondary schools with grants of between $500,000 and $1.5 million to build or upgrade trade training facilities to enhance vocational training for students in Years 9 to 12;
$62 million over three years for the National Asian Languages and Studies in Schools Program;
$1.9 billion over five years to deliver up to 630,000 additional training places in the vocational education and training sector to help address current and future skills shortages;
$626 million over four years to reduce the cost of studying maths and science at university and provide a 50 per cent reduction in HECS repayments for new science and maths graduates who undertake work in a relevant field, such as maths or science teaching;
$500 million of extra funding before 30 June 2008 to help universities upgrade and maintain teaching, research and other student facilities, to ensure needed capital funding is available in the lead up to financing from the Education Investment Fund;
$249 million over four years to phase out full‑fee paying domestic undergraduate places at public universities; and
$239 million over four years to double the number of undergraduate Commonwealth scholarships from 44,000 to 88,000 by 2012.

These measures, along with the Government's National Curriculum commitments, represent the first stages of the Education Revolution. The Government will continue to develop a long‑term reform agenda, including with the States through COAG, and through the Higher Education Review, to ensure that our education and training systems deliver the skills the economy and individuals need to continue to prosper.

Education Investment Fund

This reform will be underpinned by a new Education Investment Fund (which absorbs and extends the Higher Education Endowment Fund, HEEF). The Education Investment Fund will provide financing for capital investment in higher education and vocational education and training. Subject to final budget outcomes in 2007‑08 and 2008‑09, the Government will make an initial contribution to the fund of $5 billion, bringing its total to around $11 billion. The capital and the earnings of the fund will be drawn down over time to invest in the nation's future education and training needs, with funding for specific projects subject to rigorous evaluation criteria assessed by an independent body. Under these arrangements, the amount of funds available for capital investment in higher education and vocational education and training in coming years will be substantially greater than under the previous arrangements for the HEEF. In the future, this fund could be extended to include schools infrastructure as further contributions are made to the fund.

High quality health services for all Australians

Health is a key economic and fiscal priority, particularly given Australia's ageing population and the rising costs of new medical technologies. As the population ages, it will be essential to ensure that the workforce is as productive as possible. If, due to poor health, people are unable to contribute during their working years or their working years are shortened, wellbeing and economic growth will be reduced. In order to improve the nation's health and reap efficiencies, the Commonwealth and the States need to plan and work cooperatively together for the future.

The Budget starts this process and focuses on rebuilding and strengthening public health services and improving preventative health care.

Investing in our health and hospital system

The Government has committed an immediate allocation of $1 billion to relieve pressure on public hospitals. Overall, this means an increase in Commonwealth funding for public hospitals between 2006‑07 and 2008‑09 of more than 10 per cent.

The Government will also spend $3.2 billion over five years on the National Health and Hospitals Reform Plan, addressing pressing needs of the public health system to ensure all Australians have access to high quality public health services. Funding includes:

up to $600 million over four years to reduce elective surgery waiting lists, including $150 million to conduct an additional 25,000 procedures in 2008;
$491 million over five years to assist families cover the cost of an annual preventative dental check‑up for eligible teenagers aged between 12 and 17 years;
$290 million over three years to reduce public dental waiting lists by funding up to one million additional dental consultations through the Commonwealth Dental Health Program;
$275 million over five years for GP Super Clinics, bringing GPs and allied health professionals together in the one place to improve chronic disease management;
$249 million over five years for the Government's comprehensive National Cancer Plan to foster a holistic approach to tackling the many aspects of this disease;
$390 million over five years to invest in upgrading hospital and community health infrastructure and improving access to essential medical equipment; and
$55 million over five years for the National Perinatal Depression Plan to improve the prevention and early detection of antenatal and postnatal depression, as well as improving treatment and support services.

Health and Hospitals Fund

The Government will establish a Health and Hospitals Fund for capital investment in health facilities, including renewal and refurbishment of hospitals, medical technology equipment and major medical research facilities and projects. Subject to final budget outcomes, the Government will make an initial contribution of around $10 billion from the 2007‑08 and 2008‑09 Budget surpluses, once realised. Both the capital and the earnings of the fund will be fully drawn down over time after specific capital projects are identified. All spending on specific projects will be subject to rigorous evaluation criteria assessed by an independent body. This arrangement ensures that substantial funding is available for worthwhile capital investment in health and hospitals over the next few years.

Boosting the health workforce

The Government will spend $39 million over five years to bring nurses back into the workforce. Financial incentives will be provided to nurses who are currently working outside the nursing profession and agree to return. Incentives will also be provided to hospitals to assist with the re‑skilling of returned nurses. As announced under the Government's Skilling Australia for the Future package, up to 50,000 additional health vocational training places will be created in areas of chronic shortage, including dental health, nursing and indigenous health.

To build the rural health workforce, the Government will expand the Specialist Obstetrician Locum Scheme, increase assistance to the Medical Specialists Outreach Assistance Program, establish the rural and remote placement scheme for allied health students, and double the number of John Flynn Scholarships available to medical students to train in rural and remote practices.

In addition, $35 million over four years will be provided to fund training subsidies for mental health nurses and psychologists. This measure will assist in addressing the nurse workforce shortage, particularly in the mental health sector.

Preventative health care

The Government is determined to improve preventative health.

Addressing binge drinking

The Government's new national strategy to address the problem of binge drinking by young Australians includes bringing the tax treatment of ready‑to‑drink alcoholic beverages into line with full‑strength spirits. This measure addresses a distortion in the tax treatment of spirits and will discourage the consumption of these beverages by some young people. It is expected to increase revenue to the Government by $3.1 billion over five years. A proportion of this revenue will be redirected to preventative health following the development of the National Health Prevention Strategy, and in conjunction with the States through the COAG process.

The Government will also spend $19 million in early intervention programs that assist young people to assume responsibility for their binge drinking. This initiative targets people under the age of 18 who have been involved in an episode of alcohol abuse and will require participants to undertake educational activities.

These initiatives are in addition to the $35 million previously announced for communities to confront the culture of binge drinking particularly around sporting activities, and to ensure young people are informed about the costs and consequences of binge drinking.

Cancer, obesity and diabetes

This Budget introduces measures to tackle obesity, improve early detection of bowel cancer, improve management of type 1 diabetes, and develop the National Preventative Health Care Strategy. For example, to tackle the growing number of overweight or obese Australians, the Government is fostering healthy eating habits among children, spending $26 million over four years to conduct a basic health assessment of all children starting school and $3 million over two years for the Healthy Habits for Life Guide for parents.

Further, the Government is committing $5 million over four years towards insulin pump subsidies of up to $2,500 for type 1 diabetes sufferers under 18 years of age. These pumps replace frequent insulin injections and greatly enhance the ease and degree of control patients and their parents have over the condition. The risk of the many complications tied to type 1 diabetes will be significantly reduced for the almost 700 young people expected to benefit from this scheme.

As part of the National Cancer Plan, the Government will invest $87 million to expand the National Bowel Cancer Screening Program to screen all 50 year old Australians, thereby improving early detection and reducing pressure on hospitals. This program will continue to screen all Australians turning 55 and 65 years of aged from 2008 to 2010.

The Government has appointed a taskforce to develop a National Preventative Health Care Strategy, the first of its kind in Australia, to ensure that preventative health is given the attention required to improve wellbeing and protect the future economy from the costs of chronic disease.

Aged care assistance

The Government will increase the conditional adjustment payment from 7.0 per cent to 8.75 per cent of the recurrent basic subsidy, delivering $408 million to providers of residential aged care. This increase in funding is in addition to annual indexation of the subsidy and will contribute to maintaining the financial viability of aged care providers.

The Government will also fund the States to operate 2000 new transition care places by 2012 to help care for older Australians who are currently waiting in hospitals to be moved to an aged care facility. This measure will free up hospital beds and enable these older Australians to access more appropriate care in a nursing home, at a cost of $293 million over four years.

Fairer private health insurance arrangements

In 1997, the Medicare Levy Surcharge was introduced to encourage high income earners to purchase private health insurance. The income thresholds have not been changed since 1997 but incomes have, resulting in people on average wages now becoming liable for the surcharge. To make the surcharge fairer, the Government will increase the income thresholds from $50,000 to $100,000 a year for singles and from $100,000 to $150,000 a year for couples. As a result, around 400,000 people currently paying the surcharge will no longer be liable.

Prepared for pandemics

The Government will replace expiring stock in the National Medical Stockpile at a cost of $167 million over two years. The replenished stock, consisting largely of anti‑viral medicines and pre‑pandemic H5N1 vaccines, will maintain the capacity of the health system to respond to communicable disease outbreaks and bioterrorism events.

Closing the gap in Indigenous disadvantage

Indigenous Australians face significantly worse outcomes including in areas such as education and health compared to non‑Indigenous Australians. The Government is committed to using Australia's prosperity to close the gap in Indigenous disadvantage. The Commonwealth is working closely with the States through COAG to achieve this goal.

Specifically, COAG has agreed to:

close the 17 year life expectancy gap between Indigenous and non-Indigenous Australians within a generation;
halve the gap in mortality rates between Indigenous and non‑Indigenous children under five within a decade;
halve the gap in reading, writing and numeracy achievement between Indigenous and non‑Indigenous students within a decade;
halve the gap in employment outcomes and opportunities between Indigenous and non‑Indigenous Australians within a decade;
provide all four‑year‑olds in remote communities with access to early childhood education within five years; and
at least halve the gap for Indigenous students in Year 12 or equivalent attainment rates by 2020.

A key platform for improved Indigenous outcomes will be the objectives and outcomes for each of the new COAG national agreements in health, early childhood development and schools, vocational education and training, disability services, and affordable housing. This will be complemented by reforms in areas such as service delivery and workforce planning, protective security, alcohol and substance abuse and economic participation and active welfare.

The Government will invest an additional $90 million over five years to provide child and maternity health services to Indigenous Australians; $56 million over four years for an expansion of evidence‑based literacy and numeracy programs; $75 million over two years to further expand welfare and employment reform in the Northern Territory; $99 million over five years for additional teachers to teach the children not currently enrolled in school in the communities involved in the Northern Territory Emergency Response; and $29 million over four years for three new secondary boarding colleges in the Northern Territory. This Budget supports the continuation in 2008‑09 of measures initiated under the Northern Territory Emergency Response with overall funding of $321 million. An independent 12 month review of the Response will be conducted in the second half of 2008, following which the Government will make further decisions on the future direction of the intervention.

Tackling climate change

Climate change is one of the most fundamental economic and environmental challenges facing Australia and the world today. The costs of inaction on climate change far outweigh the costs of action. The Government recognises the seriousness of this challenge and the importance of the global community working together to address this issue. Ratifying the Kyoto Protocol was the first official act of the Government, and Australia will play an important role in the post‑2012 international negotiations.

The Government is moving quickly to implement its comprehensive framework for tackling climate change. The 2008‑09 Budget includes measures costing $2.3 billion over five years from 2007‑08 to help reduce Australia's greenhouse gas emissions, adapt to unavoidable climate change, and ensure that Australia shows global leadership in the transition to a low‑emissions economy.

The central component of this framework is the introduction of a broad based emissions trading scheme by 2010. Emissions trading, together with complementary measures, is the least cost mechanism for achieving the Government's goal of reducing greenhouse gas emissions by 60 per cent on 2000 levels by 2050. The Government intends to release final scheme design details, including targets and trajectories, by the end of 2008.

The Government has also committed to introducing a Renewable Energy Target to ensure that 20 per cent of Australia's electricity supply is generated from renewable sources by 2020.

Measures to modernise the economy for the future and help reduce Australia's greenhouse gas emissions include:

$500 million over eight years for a National Clean Coal Fund to support projects and activities that accelerate the development and deployment of clean coal and low emission technologies;
$500 million over six years for a Renewable Energy Fund to accelerate the development and commercialisation of renewable technologies in Australia and support the new Renewable Energy Target;
$500 million over five years from 2011‑12 for a Green Car Innovation Fund to promote the development and manufacture of low emission vehicles in Australia, promoting the long term sustainability of the Australian automotive industry;
$150 million over four years for an Energy Innovation Fund to support the development of clean energy technologies in Australia including the establishment of the Australian Solar Institute; and
$240 million over four years to support business in making the transition to a low‑carbon economy through the Clean Business Australia program. This program will provide support to industry to implement cost‑saving energy efficiency measures, reduce greenhouse gas emissions and develop products for market that save energy and water.

The 2008‑09 Budget also includes measures to help families reduce emissions including:

$300 million over five years for Green Loans to help Australian households to take practical action on water and energy efficiency at home;
$150 million over five years for a Low Emissions Plan for Renters to accelerate the use of insulation in existing under‑insulated rental homes; and
$14 million over four years for the Energy Efficiency of Electrical Appliances program, to help families save on their energy bills. This will expand the current six‑star Energy Rating Label to a 10 star rating system and will include a greater range of appliances.

The Government is committed to helping countries in our region respond to the challenges of climate change. The 2008‑09 Budget includes $150 million over three years to assist countries in our region to prepare for and adapt to the effects of climate change. Australia is also committed to long term cooperation with Papua New Guinea (PNG) through the Australia PNG Forest Carbon Partnership aimed at reducing greenhouse gas emissions from deforestation and forest degradation.

Securing our natural resources

Water for the Future

Water scarcity poses a significant challenge for the economy and the environment. Many of our river systems are under significant stress and water restrictions in urban areas have become commonplace.

The Government's new ten year $12.9 billion national water policy framework, Water for the Future, brings a strategic and coordinated approach to address the significant urban and rural water challenges facing the nation.

The 2008‑09 Budget improves Australia's water security by establishing:

the $1 billion National Urban Water and Desalination Plan to attract up to $10 billion worth of investment in desalination, water recycling and major stormwater projects;
the $255 million National Water Security Plan for Cities and Towns to work in partnership with government and local water authorities to minimise water loss, and invest in more efficient water infrastructure; and
the $250 million National Rainwater and Greywater Initiative, which will provide rebates of up to $500 for up to 500,000 homes to encourage more households to install rainwater tanks and other household water saving measures.

Recognising the urgent need to tackle the water crisis, the Government is also fulfilling its commitment to accelerate the provision of $400 million for water efficiency measures and buying water entitlements from willing sellers in the Murray‑Darling basin.

Caring for our Country

Protecting the unique nature of Australia's environment and improving the sustainable management of our natural resources is vital. The Government will provide $2.2 billion over five years for the Caring for our Country Program, an integrated approach to natural resource management that will rehabilitate, conserve and support our unique Australian environment.

The program will direct funding to six national priority areas through the continued engagement of landholders, local communities and regional groups. It will focus on achieving positive, targeted change such as repairing fragile habitats, improving sustainable land management practices, and enhancing the National Reserve System. Progress will be reviewed each year, and reported to the community through an annual report card.

Infrastructure investment to support growth

Australia needs to undertake further reform of investment, market and institutional arrangements for infrastructure to support future economic growth, particularly at a time when infrastructure bottlenecks are frustrating supply and putting upward pressure on prices. The Government is determined to lift Australia's productive capacity by providing leadership in the planning, financing and provision of significant national infrastructure projects, which encourages private sector involvement, including the best international expertise.

Infrastructure Australia

Infrastructure Australia has been established to ensure there is national leadership on infrastructure development in Australia. It will develop a strategic blueprint for unlocking infrastructure bottlenecks and modernising the nation's transport, water, energy and communication assets.

Infrastructure Australia is a statutory advisory council consisting of 12 members from industry and all levels of government chaired by Sir Rod Eddington. The Parliament has passed legislation establishing Infrastructure Australia (Infrastructure Australia Act 2008).

To ensure that investment in the nation's future can start early, the Government is planning infrastructure feasibility studies with the States on high‑priority projects, at a cost of $75 million in 2007‑08. The studies will examine the feasibility of: upgrading key sections of the Bruce Highway in Far North and North Queensland and the Gateway Motorway in southeast Queensland; upgrading the M5 in Sydney and constructing the Western Metro rail link in western Sydney; upgrading the Western Ring Road and constructing designated projects in the East‑West transport corridor in Melbourne; developing an integrated transport plan for Perth airport; and developing a transport sustainability study for Adelaide.

These feasibility studies will feed into the National Infrastructure Audit to be completed by Infrastructure Australia by the end of 2008. The audit will develop an Infrastructure Priority List for consideration by COAG in March 2009. Infrastructure Australia will also develop best practice guidelines for public private partnerships for consideration by COAG by October 2008.

Building Australia Fund

The Government will establish a fund to raise Australia's productive capacity — the Building Australia Fund (BAF). The BAF will help finance the current shortfall in critical economic infrastructure in transport and communications, such as road, rail, and ports facilities, to ease urban congestion and enable growth in trade, and broadband.

Subject to final budget outcomes, the Government will commit funds to the BAF from the 2007‑08 and 2008‑09 surpluses, once realised. Both the capital and earnings of the fund will be drawn down over time to finance specific infrastructure projects. This arrangement ensures substantial funding is available for capital investment in infrastructure over the next few years. Spending from the fund on specific projects will be subject to rigorous evaluation by Infrastructure Australia.

The BAF will receive, in instalments, an initial allocation of $20 billion, on current projections. The Communications Fund will be closed and its capital of $2.4 billion absorbed into the BAF, along with $2.7 billion from the partial proceeds of the T3 sale, to help finance the Government's commitment to invest in a National Broadband Network and regional telecommunications initiatives. Disbursements from the fund on these will be subject to Government consideration of the outcomes of the National Broadband Network Request for Proposals process and the Glasson Review.

National Broadband Network

In preparing for future infrastructure needs, the Government has started the process to deliver a National Broadband Network (NBN), which will involve a Government investment of up to $4.7 billion. The NBN will be an open access, high‑speed, fibre‑based broadband network that is expected to deliver a minimum speed of 12 megabits per second and cover 98 per cent of Australian homes and businesses.

In April 2008, the Government released its request for proposals to roll‑out and operate the NBN and expects to make a decision on the preferred proponent(s) in October 2008. Construction is expected to commence by the end of 2008.

Road and rail infrastructure — AusLink 2

The Government continues to provide funding for key strategic transport programs through AusLink but with a sharper focus on achieving productivity gains. The Government will invest $22.3 billion in road and rail infrastructure over five years from 2009‑10 to 2013‑14 under a second AusLink national land transport plan (AusLink 2).

Specific projects of note include:

$1.1 billion for the Ipswich Motorway Upgrade (Queensland);
$2.5 billion to upgrade the Pacific Highway from Bulahdelah to the Queensland border; and
$900 million for the Western Ring Road Upgrade (Victoria).

The Government has also commissioned a comprehensive scoping study for a new Melbourne to Brisbane inland rail link. An inland rail link has the potential to cut rail freight times between Melbourne and Brisbane by up to 15 hours, from 36 to 21 hours, which would result in significant productivity gains.

Energy

The Government continues to work closely with the States on energy market reform. These reforms are to ensure that Australia has reliable and efficient energy supplies into the future. In this Budget, the Government will provide $7 million to establish the Australian Energy Market Operator (AEMO). The AEMO will be the national market operator for both electricity and gas. It will also include a new national transmission network planning function to ensure a more coordinated approach to the development of electricity transmission networks. The costs of establishing AEMO will be recovered in later years through fees on market participants.

An innovative future for Australian industry

Innovation is a key driver of productivity and economic growth. The Government will introduce policies designed to encourage Australian business to become more innovative and internationally competitive.

New ideas and new technology

The Government will provide $251 million over five years to establish Enterprise Connect Innovation Centres. The centres will form an industry support network that will connect small and medium‑sized businesses with new ideas, knowledge, and technology. The network is designed to help businesses apply this knowledge and technology to build their internal capacity and lift productivity.

The Government will also provide $42 million over four years to 36 Business Enterprise Centres to help them provide advisory services to business owners and managers engaged in starting, growing, or relocating a business.

Support for research

Recognising the link between research and innovation, the Government will introduce initiatives to boost Australia's research capacity, including:

$326 million over four years to fund four‑year Future Fellowships valued at up to $140,000 a year for 1,000 of Australia's top mid‑career researchers; and
$209 million over four years to double the number of Australian Postgraduate Awards for PhD or Masters by Research students.

Reviewing existing policies

The Government has initiated reviews of the national innovation system, the automotive industry and the textile, clothing and footwear industries. An objective of these reviews is to ensure that future policies underpin further innovation and productivity growth.

Regional development for a sustainable future

The Government has established Regional Development Australia to engage with local communities to deliver regional solutions. The Government has committed $176 million from 2007‑08 over four years to implement its Better Regions initiative and will spend $130 million over four years assisting primary industries to adapt and respond to climate change. The Government's Enterprise Connect Innovation Centres will assist small and medium businesses, including those in regional areas, become more productive. The Enterprise Connect Innovation Centres will include a $20 million Innovative Regions Centre in Geelong, and offices in regional Australia including Alice Springs and Mackay. The Government has also established a new Office of Northern Australia, with offices in Darwin and Townsville, to provide advice to the Government on issues relevant to northern Australia.

The Government will provide $271 million over four years to fund the Australian Broadband Guarantee. The guarantee provides equitable access to 'metro‑comparable' broadband services in regional and remote communities and blackspot areas.

Addressing skill needs with migration

The Australian labour market is the tightest it has been in a generation, with skill and labour shortages pushing up labour costs and contributing to inflationary pressures. Immigration will continue to be an important contributor to labour supply, with skilled migration in particular helping to address Australia's skill needs in the short‑term while also delivering fiscal benefits.

In the medium to longer‑term, the level of net overseas migration plays an important role in maintaining sustainable economic growth. Skilled migration helps assist in addressing Australia's skill needs. Migration can reduce the rate of population ageing because new migrants are younger on average than the resident population.

The Government is committed to ensuring that skilled migration continues to contribute to the labour needs of the economy as part of a balanced migration program. To this end, the Government is increasing the Migration Program by 37,500 places from 2008‑09, bringing the total program to 190,300. Of these additional places, 31,000 will be for migrants in the skilled stream, following on from a one‑off increase of 6,000 places for skilled migrants in 2007‑08.

The Government is also providing a one‑off increase of 500 offshore refugee places to the Humanitarian Program in 2008‑09 for Iraqis affected by the conflict in Iraq, taking the total program to 13,500 places in that year. In addition, the Government will provide up to 600 permanent visa places for Iraqi Locally Engaged Employees and their dependent family members who are at risk partially because of their work for the Australian Government. The Government will also provide an increase of 750 Special Humanitarian places from 2009‑10, bringing the total program to 13,750 places.

Overall, the 37,500 additional Migration Program places, including 31,000 skilled migrants, are estimated to deliver $1.9 billion over four years in additional revenue (excluding $1 billion of GST revenue that will be paid to the States), more than offsetting the $1.4 billion cost of these additional places arising from increased demand for government services and benefits.

Strengthening national security

The Government is committed to strengthening Australia's national security. Through the Australian Defence Force (ADF) and Australian Federal Police (AFP), the Government is making significant contributions to international security including in Afghanistan, the Middle East, Timor‑Leste, and Solomon Islands. Australia is also increasing both the quantity and effectiveness of development assistance to countries afflicted by poverty, especially in the Asia‑Pacific region.

Defence and National Security

The Government is delivering on its commitment to a modern and well equipped ADF by providing adequate funding and ensuring effective use of Defence dollars.

This Budget meets the Government's commitment to provide 3 per cent real growth per year on average in Defence's underlying funding base to 2015‑16. To provide even greater funding certainty, the Government has extended this funding guarantee to 2017‑18. Growth rates in total Defence spending vary between years due to slippage in acquisitions and other factors. Real growth in total Defence spending is expected to average 4 per cent per year over the next four years, as the Defence White Paper is implemented.

The White Paper and an audit of the Defence budget will ensure best use of the growing Defence budget and better strategic capability planning into the future. This Budget also provides $5 million for annual independent checks of major acquisition projects.

The Government has committed to finding further efficiencies and savings and to reinvesting these in priority Defence projects, while ensuring no adverse impact on operational capacity. The Government has established an operations reserve to fund Defence's overseas operations in 2008‑09. The new reserve will be drawn from internal resources and funding, and demonstrates a responsible approach to Defence budget management.

Funding to Defence for ADF commitments in this Budget includes:

$429 million over three years to extend Australia's military involvement in Afghanistan to June 2009;
$166 million over two years to extend our military presence in Timor‑Leste to June 2009; and
$14 million in 2008‑09 to extend ADF support to the Regional Assistance Mission to Solomon Islands to June 2009.

The Government will meet its commitment to reduce Australia's military presence in Iraq by withdrawing the main land combat force, beginning mid year, with other contingents to remain, at a total cost of $155 million over two years.

The Government will provide $12 million over four years to trial free provision of basic medical and dental care to ADF dependants in five locations. A further $2 million will be provided to improve prevention and early intervention on mental health issues for current and former ADF members, from recruitment through to rehabilitation and resettlement into civilian life. Both of these initiatives will be funded through the reinvestment of internal savings identified by Defence.

The AFP is also contributing to international security and regional stability. Funding to the AFP for Budget initiatives include:

$53 million over two years for the AFP to assist Afghanistan's police to strengthen counter‑narcotics measures;
$54 million over two years for the AFP to provide capacity building assistance to the Timor‑Leste police; and
$75 million over four years for AFP assistance to Pacific policing, including in Samoa, Nauru, and Papua New Guinea.

Overseas development assistance

In responding to the enormous challenge of global poverty, funding for overseas development assistance will increase to around $3.7 billion in 2008‑09, from around $3.2 billion in 2007‑08.

The Government has taken significant steps to deliver its long‑term commitment to achieve a ratio of Official Development Assistance to Gross National Income of 0.5 per cent by 2015-16 by meeting its interim target of 0.35 per cent a year early in 2009‑10 and setting the target for 2011‑12 to 0.38 per cent. Furthermore, the Government is focused on ensuring the effectiveness of Australia's aid program, signalled by the publication of Australia's first Annual Review of Development Effectiveness in March 2008.

Australia's overseas development assistance program assists developing countries to achieve long term sustainable growth. Economic growth is fundamental to reducing poverty and achieving the United Nations (UN) Millennium Development Goals (MDGs). By making greater use of multilateral organisations, the Government will strengthen its aid partnerships and improve the reach of Australia's assistance. Reflecting these priorities, new initiatives include:

$300 million for improving access to clean water and effective sanitation in the Asia Pacific region;
$200 million to support UN agency leadership of the global efforts to achieve the MDGs, as strengthened UN agency led global responses provide the opportunity for coordinated global development efforts; and
$127 million to establish a Pacific Region Infrastructure Fund to improve basic infrastructure in the Pacific, as reliable and effective infrastructure is fundamental to achieving economic growth.

Australia as a financial services hub

The Government is committed to securing Australia's place as a financial services hub in the Asia Pacific region. To this end, the Government will improve the international competitiveness of Australian managed investment trusts by replacing the 30 per cent non‑final withholding tax rate that applies to certain distributions with a reduced final withholding tax of 7.5 per cent.

In order to safeguard the integrity of the tax system, the new arrangements will be restricted to countries with which Australia has effective exchange of information (EOI) agreements. The arrangements will be phased in over three years. Foreign investors resident in EOI countries will be subject to a 22.5 per cent non‑final withholding tax in the first income year, a 15 per cent final withholding tax in the second income year and 7.5 per cent final withholding tax in later income years. Foreign investors in countries without effective EOI arrangements will be subject to a 30 per cent final withholding tax. Consistent with the need for fairness and integrity in the tax system, this is a strong statement of Australia's non‑tolerance of international tax evasion and avoidance.

While the current regulatory system has done well in the recent financial market turbulence, changes are required to ensure the integrity and stability of our markets. To maintain the attractiveness of Australia as an investment destination, the Government will ensure greater transparency of covered short selling and will review disclosure requirements for equity derivatives.

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