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Federal Budget 2013: What it means for you

Seven's finance expert and Sunrise host David Koch explains what to expect from tonight's budget announcements.

While last year small business benefited from accelerated write-offs for buying capital equipment, the 2013 Federal Budget has very little in the way of new incentives.

There is a welcome focus on encouraging start-ups, but the most instructive information comes from Treasury forecasts in Budget Paper 2 on what the economic and business environment will be like over the next year.

. Economic growth will fall slightly from 3-2.75 per cent. Yes, the economy will soften but compared with the rest of the world we are streets ahead of most other developed nations.

. This current financial year will produce a $19.4 billion deficit and next year $18b. The aim is to get back to a balanced budget in 2015-16 and surplus 2016-17. Given the track record of the past couple of years, don’t hold your breath. For example, even with a change of Government, analysts at Commsec don’t see a return to surplus for 5 years.

. The big black $17b tax revenue hole this financial year was caused from a slump in company and capital gains tax along with just $5.5b raised from the Mining Tax instead of the budgeted $14.4b.

. Business investment is set to drop substantially as the resources boom moves from building to operating new projects. While that means engineering and construction investment falls sharply, hopefully exports rise as these projects start producing.

. Inflation will continue to trend down with the CPI easing from 2.5-2.25 per cent. The Budget papers show a graph of the retail sector and how it’s growing from increased sales rather than rising prices… that environment is expected to continue.

. Wages growth of 3.5 per cent is expected to outstrip the CPI despite an expected rise in unemployment from 5.5 to 5.75 per cent.

More: Kochie Backs Budget Attack On Overseas Operators

. When you look at the economic forecasts, there appears to be the right environment for the Reserve Bank to push through more official interest cuts over the year and the banks should be in a position to pass the full cut on.

. Household consumption is forecast to rise slightly but consumers are expected to remain cautious and in the bunker. Treasury doesn’t see any return to big spending boom times from consumers.

. While sharemarkets around the world are booming, there is a strong note of caution from Treasury about the disconnect with global economic reality. While China has stabilised and the US and Japan are recovery slowly, the sovereign debt crisis in Europe has not improved.

Treasury sees a realistic possibility of further financial shocks as Europe continues in depression and the US will grapple with how to wind back stimulus without stalling recovery.

. As we face another year of tough business conditions, it’s sobering to study the graphs on how we compare with the rest of the world. Yes we’re not in Budget surplus, and won’t be for a few years, but compared with the rest of the world we’ve sailed through the GFC incredibly well.

Our economic growth will be 2.75 per cent compared with the US (2%), Japan (1.25%) and Euro zone (0%).

Australia’s net Government debt will peak at 11.4 per cent of GDP whereas the US will be around 90 per cent, Japan 130 per cent and Euro zone about 100 per cent.

Bottom line is that while we are the envy of the rest of the developed world, business conditions will remain sluggish for atleast another year.

Realistically this Federal Budget is largely irrelevant when it comes to handouts, promises and new initiatives. The way the polls are looking at the moment this Budget will only last 3 months until the election, then all bets are off as a likely new Government reassesses everything.

You could reasonably argue that Thursday’s Budget Reply from the Coalition is more relevant than the Budget itself.

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