The budget has thrown up a number of key political debating points, so
with the dust beginning to settle it’s time to sit in judgment on who
is right and who is wrong:

Interest rates

Budget measure: slightly expansionary and inflationary by reducing surplus from 1.5% of GDP in 2005-06 to forecast 1.1% in 2006-07.
Commentariat: hopelessly split, ranging from Alan Kohler
saying another rate rise is almost “inevitable” to Alan Wood’s
“unequivocal” claim it won’t effect the RBA.
The defence: The RBA definitely won’t lift rates on the back of this because we’re still predicting a $10.8 billion surplus in 2006-07.
The verdict: 90-day bank bill futures rose 4 points to 6.11%
overnight, so the market clearly thinks the budget marginally raises the chances
of a
rate rise and there will be at least a 0.25 percentage point jump to 6% within three
months. However, this is still marginal and the government would be
damaged if they started forecasting $20 billion-plus surpluses.

Investing for the future in skills and education

Budget measure
: Nothing new of note
Commentariat: one of the biggest weaknesses

The defence:
32 new Federal technical colleges was the biggest single election promise in 2004.
The verdict: Australia is one of the few western democracies
reducing its
education spending as a proportion of GDP and more should be done.
Bribing the greys and families, Howard’s two most important
constituencies, is being given a much higher priority than skilling up
the nation. When combined with the refusal to increased skilled
migration next year, labour shortages will continue to delay or blow
out big new resource projects.


Budget Measure: no fuel excise relief despite rising pain at the bowser
Commentariat: one of the biggest weaknesses in the budget
The defence:
we don’t control oil prices and it’s better to put
money in people’s pockets through income tax relief rather than
“fiddling” with excise, as the PM termed it on AM this morning.
The verdict: the best way to relieve petrol pain would be to cut
the 38c-a-litre fuel excise. Those who have limited income and drive
long distances are really struggling, while wealthy greenies who don’t
own a car get too much benefit from the tax cuts.

Infrastructure investment

Budget Measure: $500m for Murray, more for roads and rail
Commentariat: one of the biggest weaknesses in the budget
The defence:
look at the record road and rail investment
The verdict: More should be done, as numerous new resources projects are being shelved due to labour costs and infrastructure bottlenecks.

Peter Fray

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