The 2008-09 Federal Budget is unique for two reasons in that it is vitally important to the future of the Australian economy and it offers few surprises as most initiatives were either announced prior to the Federal Election or have been leaked over recent weeks.

The preparation of this Budget has been fascinating to observe given the economic climate has changed so dramatically in the six month period since the election, and it is the first major indication of what Queensland businesses can expect from the Rudd / Swan Government.

With the Queensland business community now doing it tough, Commerce Queensland has consistently called on the Federal Government to use this Budget to boost productivity by focusing on reducing inflation, cutting government spending and encouraging greater investment in infrastructure that promotes economic growth.

Commerce Queensland has welcomed the announcement of a major review of the Australian taxation system as part of the Budget.  A structural review across the taxation system is an absolute necessity for the Australian economy to continue growing and Commerce Queensland will participate in and monitor the Review closely. 

However, the real focus of this Budget is the fight against inflation and the need to dramatically reduce government spending.  To this end the $21.7 billion surplus and the $7 billion reduction in government spending initiatives are consistent with the need for fiscal tightening and should aid in combating inflation.  Commerce Queensland has long advocated the need for investigation into and action on wasteful public spending.

Treasury's forecast of inflation tapering over the next two years is welcome, but the real evidence of the Budget's success will come from Reserve Bank of Australia.  Commerce Queensland will monitor the interest rate announcements with trepidation.

Commerce Queensland has been confident that the Federal Government would recognise the desperate need to escalate spending within Queensland to deliver urgent infrastructure that will promote ongoing strong economic growth for the state's powerhouse economy.

Queensland should fare well from the $20 billion Building Australia Fund.  We will now watch carefully for the State Budget in June to build on this commitment. 

The Queensland business community has clearly recognised the importance of interest rates and economic demand as constraints on business growth.  The Education Investment Fund is welcome, however, Commerce Queensland continues to express regret that an already successful model delivered through Australian Technical Colleges will be discontinued by this Government.

Much emphasis has been placed on climate change, however the real issue for Queensland businesses continues to be the successful and business friendly roll out of a National Emissions Trading Scheme.

In summary, this budget commences a fight to address inflation, cut government spending, encourage savings and attend to infrastructure bottlenecks. 

This budget has moved in the right direction but could have gone further with more assistance to business.  For this reason, Queensland businesses will be relatively neutral to this instrument of economic management.

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Significant growth has been forecast for both revenue and expenditures over the next financial year with the 2008-09 surplus estimated to be $21.7 billion and for government receipts to grow by 5.9 percent with expenditure growth running at 4.6 percent. Total tax as a proportion of GDP remains high and more can be done to reduce the burdens of taxation.

The Expenditure 'Review' was fruitful, gutting more than $7 billion but more is needed. It was a good start and is commended.

Commerce Queensland welcomes the announced tax review and will be an active participant putting forward the case that budget surpluses should not be amassed while tax revenue to GDP remains near all-time high levels. Rather the surplus tax revenue should be partially returned to taxpayers though tax reform.

Tax reform, if done correctly, will provide further impetus to productivity and participation, leading to sustainable real wage growth and greater prosperity.

Economic Outlook

• At 4.2 per cent, inflation is at a 16 year high. Economic growth will moderate to 2.75 per cent in 2008-09 because of higher interest rates and slower global growth.
• Powerful countervailing forces confront the economy. Global financial turbulence will slow growth, but rising terms of trade will boost incomes and prices.

Fiscal Outlook

• The Government will deliver a strong surplus of $21.7 billion (1.8 per cent of GDP), with every dollar of new spending in 2008-09 matched by spending cuts.
• Growth in real spending will be 1.1 per cent in 2008-09, the lowest rate for nine years.
• The strong surplus and low spending growth will bear down on inflation, provide funds for long term investment, and ensure a strong budget at a time of global uncertainty.
• The Government has identified savings of $33 billion over four years, including $7 billion in 2008-09.
• Savings measures in the Budget are aimed at reprioritising spending, better targeting tax and benefits, and ensuring Government administration is as efficient as possible.
• The Government will continue to examine spending and taxation in the second stage of the expenditure review and in the comprehensive review of Australian taxation.

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Creation of Three National Funds - Funding future challenges

The Government will establish a Building Australia Fund ($20 billion), an Education Investment Fund ($11 billion) and a Health and Hospitals Fund ($10 billion), using the 2007‑08 and 2008‑09 budget surpluses, and future surpluses as appropriate, to finance investment in infrastructure, education and health.

The Government will establish a COAG Reform Fund as a vehicle through which these three funds are transferred to the States from the BAF, EIF and HHF (for capital expenditure) or direct from the Budget (for recurrent expenditure on Council of Australian Government reforms).

Means Testing

The Federal Government will introduce an income test of $150,000 on the Family Tax Benefit Part B and dependency tax offsets.

The Baby bonus will only be available where family income is not greater than $75,000 in the six months from the birth of a child ($150,000 annualised).

Tax Increases

• Applying fringe benefits tax to 'meal card' benefits and work laptops used mainly for private purposes ($110 million), jointly held assets ($4 million) and exemption of work-related items ($50 million).
• Broadening the definition of income for income‑tested benefits to include salary sacrificed super contributions, net financial losses and reportable fringe benefits.
• Lifting the luxury car tax from 25 per cent to 33 per cent ($130 million).
• Removing the minimum rate of the Child Care Benefit for high income earners.
• Tightening rules for choosing when employee shares and rights are assessed to ensure income is properly included in tax assessments.
• Depreciating capital expenditure on computer software over four years, the same as hardware.
• Removing the oil excise exemption for condensate, so that it is treated like crude oil ($564 million).
• The interest expense apportionment rules for capital protected borrowings will be changed to more accurately reflect the interest component.
• Increased rates on 'other excisable beverages' ($640.1 million)
• Increase in the Passenger Movement Charge ($106 million)
• Change the definition of family in the family trust election rules to limit lineal descendants to children or grandchildren of the test individual or of the test individuals spouse
• Apply an income threshold so that those earning more than $150,000 will not be entitled to claim the Dependent Spouse, Housekeeper, Child-Housekeeper, Invalid Relative and Parent/Parent-in-law tax offsets
• GST and the sale of real property ($90 million)

Tax Cuts

• Cost of $46.7 billion over four years ($7.1b this year)
• Increase in low income tax offset (significantly reduces tax for low income earners up to $55,000)
• Increase in thresholds for 30 per cent, 40 per cent and 45 per cent rates this year.

From 1 July 2008:

• The 30 per cent threshold will be raised from $30,001 to $34,001
• The low income tax offset (LITO) will be increased from $750 to $1,200
• The 40 per cent threshold will increase from $75,001 to $80,001
• The 45 per cent threshold will increase from $150,001 to $180,001.

The Government will raise the Medicare Levy Surcharge by raising the income thresholds from $50,000 a year to $100,000 for single people and from $100,000 to $150,000 for couples. Singles without private health insurance will save up to $1,000 per year and Couples will save up to $1,500 from these changes.

A final withholding tax on certain distributions from Australian managed investment trusts (MITs), at a reduced rate but, in order to safeguard the integrity of the tax system, will restrict it to countries with which Australia has effective exchange of information agreements. Foreign investors resident in such countries will be subject to a withholding tax for distributions at the rate of

• 22.5 per cent from 2008‑09,
• 15 per cent from 2009‑10 and
• 7.5 per cent from 2010‑11.

Foreign investors in countries without effective exchange of information will be subject to a 30 per cent final withholding tax.

First Home Savers Accounts ($130.2 million) will be introduced to assist Australian to save larger deposits for their first home.

Superannuation

The Government will provide $16 million funding over three years to set up an optional superannuation clearing house to "cut the red tape burden on businesses across Australia." This was a pre-election commitment and has previously been foreshadowed in some detail by Senator the Hon Nick Sherry, the Minister for Superannuation and Corporate Law.

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The Federal Government will replace Australian Industry Productivity Centres with the Enterprise Connect Innovation Centres. The Government will also be closing the Commercial Ready program, which will result in savings in excess of $700 million over four years.

Energy

Innovative technologies will be an important part of the transition to a low‑emissions future. The Government is investing:

• $500 million over six years in the Renewable Energy Fund,
• $500 million over eight years for the National Clean Coal Fund,
• $150 million over four years for the Energy Innovation Fund.

The Government is encouraging the development of low‑emissions vehicles through a $500 million Green Car Innovation Fund, and will support change in business practices through the Clean Business Australia program, at a cost of $240 million over four years.

Water

The new $12.9 billion ten year national water policy framework, Water for the Future, will respond to the water challenges facing urban, regional and rural water users, and includes:

• $1 billion to attract up to $10 billion of investment in desalination, water recycling and major stormwater capturing projects nationwide
• $255 million for practical projects to save water in our cities and towns
• $250 million for the installation of rainwater tanks and other water saving measures.

The Government is also fulfilling its commitment to accelerate the provision of $400 million for water efficiency measures and for purchasing water entitlements from willing sellers in the Murray‑Darling Basin.

Infrastructure

Building Australia Fund

• Based on current estimates, the BAF will receive $20 billion over the next two years to fund shortfalls in national transport (roads, rails and ports) and broadband. The Communications Fund will be closed and its assets of $2.4 billion transferred to the BAF
• The Government will provide up to $4.7 billion from the BAF for a National Broadband Network.

During 2008‑09 Infrastructure Australia will:

• complete a National Infrastructure Audit
• develop an Infrastructure Priority List to guide public and private investment
• develop best practice guidelines for Public Private Partnerships.

The Government will invest $22.3 billion in land transport infrastructure from 2009‑10 to 2013‑14 under AusLink 2.

Small Business

• Provides $42 million to fund one-stop small business advisory centres across Australia. The funding will support 36 Business Enterprise Centres in suburban, rural and regional Australia.

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Skilling Australia for the Future

• $1.9b over five years. $33.3m in the current financial year with 20,000 new training places available for job seekers for 2007-08.
• The 2008-09 Budget extends this to 630,000 new training places over five years (including 85,000 apprenticeship places)
• The $1.9 billion Skilling Australia for the Future is comprised of the following five elements:
  • $884.6 million to provide an additional 238,200 vocational education and training places to people currently outside the workforce;
  • $704.6 million to provide an additional 391,800 places for people within the workforce;
  • $242.2 million for an additional 85,000 Australian apprenticeship places;
  • $83.2 million for strengthened industry skills councils; and
  • $4.1 million for skills and training information centres.

  In addition the Government will provide $98.1 million for grants that will enable year 9‑12 students to participate in on‑the‑job training as well as $19.6 million to create the statutory body, Skills Australia.

Higher Education

• $500 million in 2007-08 for higher education institutions to undertake capital projects
• $562.2 million over four years to encourage students to study maths and science plus $63.6 million to reduce compulsory HELP repayments for maths and science graduates who take up related occupations such as teaching.
• $99.5 million higher education nursing places

Education Investment Fund

• $11 billion made up from $5 billion from 2007-08 and 2008-09 Budgets and $6 billion from the Higher Education Endowment Fund.  It will be for capital expenditure and renewal and refurbishment in universities and vocational institutions as well as in research facilities and major research institutions.  No caps on yearly allocations.

Reform Commonwealth Payments to the States and Territories to Focus on Outcomes

There will be a broader focus on outcomes and outputs.  In schooling it will include non-government school sectors and in training it will extend to industry.  In the training sector the focus will be on progressing further reform to enhance its flexibility and responsiveness, improve access to skills, and strengthen the performance of the national system. It will meet the complex demand created for loss of skills for those retiring or leaving the workforce.

Trade Training Centres in Schools

• $2.5 billion over 10 years. Decisions on funding for the first $100 million to be announced by late June 2008.
• Second round applications for up to $800,000 will close in October 2008.

Other Schools

• $6.4 million to promote school‑business linkages and strengthen partnerships between schools and businesses and improve vocational education and training in schools. The program will also develop a Job Ready Certificate for students and help provide students with relevant work placements and industry experience.
• Funding for this measure will be provided from the redirection of funds from Career Advice Australia.
• $5 million will be provided to establish a mentoring program.
• School Grants for on the job learning $98m over four years

Literacy and Numeracy Action Plan

• $577.4 million for the Getting the Basics Right Action Plan – schools, families, state and territory governments and non-government school systems.
• $17.2 million over four years to improve the collection, reporting and analysis of data relating to the performance of schools agreed by COAG.

National Curriculum

• $20 million comprising $5 million per year over four years to support the activities of the National Curriculum Board to develop a national curriculum.

Employment

$3.7 billion over three years has been allocated to deliver services to help job seekers find suitable employment, drive efficiencies and reduce waste.

The new system will strongly emphasise 'work readiness', providing greater skills development, training, work experience and tailored case management. By working more closely with employers we will ensure job seekers are developing the skills in greatest demand.

Other significant reforms to employment services include:

• Job seekers to be streamed, with additional assistance being provided to the most disadvantaged;
• Greater incentives for employment service providers to engage with employers, refer job seekers to apprenticeships, and take up training opportunities under the Government’s skills programs;
• $41 million over three years to develop innovative projects offering localised solutions in areas of high disadvantage;
• Retaining Green Corps and Work for the Dole activities for job seekers who have not been able to secure employment after a period of time;
• A fairer and more effective work-like compliance system based around a 'no show, no pay' concept with financial penalties based on the level of participation failure. Eight-week non-payment penalties will be retained for job seekers who are persistently non-compliant; and
• Replacing the "one size fits all" approach of the old Job Network system with greater flexibility for employment service providers to tailor services for individual job seekers.

The Rudd Government will release a discussion paper on the implementation of the new model in the near future while further public consultations will be held in all capital cities and several regional centres from 19 May.

Contracts for the Disability Employment Network and Vocational Rehabilitation Services will be extended until March 2010. This will enable the Government to consider the findings from the National Mental Health and Disability Employment Strategy in any new disability employment and vocational rehabilitation employment service contracts.

$6 million has been allocated for industry representative groups to provide an employer brokerage service and $41 million for an Innovation Fund to supply innovative employment solutions

Employer and apprentice incentives for apprentices in skills shortage — remove the prior‑qualification rule

$26.6 million over four years has been set aside from 2007‑08 to enable employers of Australian Apprentices with prior qualifications to receive incentive payments under the Australian Apprenticeships Incentives Program. This measure will encourage the take‑up of apprenticeships in trades experiencing a skills shortage. Previously, employers of apprentices with prior qualifications above the Certificate II level could not access these incentives. In addition, apprentices with prior qualifications will now be able to claim the Commonwealth Trade Learning Scholarship and the Living Away From Home Allowance.

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Migration

The Rudd Government will add another 31,000 skilled migrants to the 2008-09 Migration Program. The increase is further to a special one-off allocation of 6000 extra skilled migration places announced by the Rudd Government in February 2008.

Overall, permanent skilled migration will make up 133,500 places in the Migration Program, which will total 190,300 for 2008-09. The Family stream will be increased by 6,500 places to 56,500. The increase in the Migration Program from 2008-09 will cost an additional $1.4 billion over four years for settlement services and ongoing core government services such as health, education and employment services. The additional cost to the Budget will be more than offset by revenues from income tax, excise duty, GST and charges paid by the new migrants, estimated at some $2.9 billion over four years.

The Rudd Government has also committed $19.6 million to improve the processing and compliance of the temporary skilled migration program, which includes the uncapped 457 visa scheme. The use of 457 visas to employ temporary skilled migrant workers has grown rapidly in recent years. A total of 39,500 subclass 457 visas were granted in 2003-04 compared with 49,700 in just the first half of 2007-08.

The temporary skilled migration program is expected to exceed 100,000 places in each of 2007-08 and 2008-09.

A working party led by Senator Evans and the Deputy Prime Minister, Julia Gillard, and including the Treasurer and Minister for Trade, will develop a longer-term reform package to improve the integrity and responsiveness of temporary working visas.  The reforms will be considered as part of the 2009-10 Budget.

The Rudd Government also fulfilled another election commitment by abolishing the Temporary Protection Visa (TPV) regime for asylum seekers set up by the previous government. The Minister for Immigration and Citizenship, Senator Chris Evans, said that from early 2008-09, people found to be refugees will receive a permanent visa, regardless of their mode of arrival.

Trade

The Government will provide an additional $50 million to the Export Market Development Grants (EMDG) scheme in 2009-10. Funding levels beyond 2009-10 will be determined in light of the Government's Review of Export Policy and Programs.

The Government will also provide $61 million over three years towards Australia's participation in World Expo 2010 in Shanghai, expected to be the largest world expo ever held. Australia's contribution will showcase positive images of contemporary Australia and highlight to China, our largest trading partner, the capabilities of Australian business.

The Government has decided to increase application fees for passports. With effect from 1 July 2008, the application fee for an adult passport will rise from $200 to $208. All other categories of passport fees will also increase.

In 2008-09 the Government will conduct a functional review of the Department of Foreign Affairs and Trade to ensure the Department's resources and structure are consistent with the Government's foreign and trade policy priorities. The results of the review will be considered in the Budget context.

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Funding of Agencies

The Australian Industrial Relations Commission (AIRC) has reportedly been allocated an additional $3.2 million for 2008/09 and $13.3 million over four years (presumably for the task of award modernisation and transition to become Fair Work Australia).

The Workplace Ombudsman has reportedly been allocated an additional $5.8 million ($17.7 million over two years).

The Workplace Authority appears to have had its funding reduced by $30 million, with an additional reduction of $106.2 million in 2009/10, as agencies transition together to become Fair Work Australia. 

This appears to mean an additional allocation towards an already expanding inspectorate and no further resources for the approval of agreements, notwithstanding the backlog of agreements awaiting approval and the strictures of the new tests for agreement approval. 

The Australian Fair Pay Commission (AFPC) has had its funding reduced, reportedly to $7.479 million, down from $8.478 million in 2007/08, with a further $1.3 million reduction planned for 2009/10.

The Australian Building and Construction Commission (ABCC) budget is apparently maintained – it will receive $32.814 million for 2008/09, up from $29.596 million in 2007/08.

DEEWR 2 per cent Efficiency Dividend

Notwithstanding the preceding, each Commonwealth agency has been directed to deliver a two per cent 'efficiency dividend'. It is unclear how this will be delivered in the Workplace Relations and Workplace Health & Safety areas and implications for specific programs and services. This will be closely monitored and raised with the Department. Further information will be circulated as it becomes available.

Fresh Ideas for Work and Family

The Fresh Ideas for Work and Family program will allocate $12 million to 'encourage small businesses to implement practices that help employees balance their work and family obligations as well as improve employee retention and productivity'.  The funding will be available in grants payable directly to small businesses of between $5,000 and $15,000 to 'help meet the set-up costs of family friendly working arrangements'. Initiatives identified for the grants include:

• Establishing rosters based on school terms and alternative core hours.
• Developing workplace policies on unpaid leave for carers and workers who have children with disability or other special needs.
• Providing facilities for employees with young children such as family rooms.
• Setting up workplace mentoring.

The program will be administered by the Department of Education, Employment and Workplace Relations. Experts will be available in each state/territory office of Fair Work Australia to provide support for small businesses seeking to implement family friendly arrangements in their workplace. The program will be introduced from July 2008 and be fully operational from 1 January 2010.

Baby Bonus and Family Tax Benefits

The Baby Bonus is to increase from 1 July 2008 to $5,000 as previously announced. However, it is also to become means tested and not payable to individuals with an income exceeding $150,000 per annum. Family Tax Benefit Part B is also to become means tested at the same figure. These payments are currently being examined by the Productivity Commission in its inquiry into options for a national paid maternity leave scheme.

Childcare Tax Rebate

The Treasurer has announced that the Childcare Tax Rebate will increase from $4,354 per child per annum to $7,500 from 1 July 2008. Support will be paid quarterly and account for an estimated 50 per cent of child care costs, up from 30 per cent. Commerce Queensland has emphasised, through an initial submission to the Productivity Commission’s inquiry into options for a national paid maternity leave scheme, the importance of improving childcare accessibility as a key measure to improve capacity to manage working and family life.

Supplementary AFPC Submission

In the wake of the 2008 budget, Commerce Queensland  will shortly lodge a supplementary submission with the Australian Fair Pay Commission. This submission will update Commerce Queensland's March 2008 submission in light of the budget, and highlight in particular downwards revisions to various key economic forecasts.

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COAG Reform Fund

In 2008/09, the States will receive $78.6 billion in total payments, an increase of 4.8 per cent for the COAG Reform Fund. Workplace Health & Safety is one of the 27 regulatory reform areas under COAG, however it is not yet clear how these additional funds will be apportioned, and whether additional monies will flow to the WHS area. This will be further examined and additional advice provided as more detailed information becomes available.

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