Capacity building and winding back federal government spending in non-priority areas were key elements of the Rudd Government's budget released on 12 May 2008.

This focus was widely supported by the business community and will go some way to addressing the inflationary pressures and associated interest rate increases that are having a negative impact on the overall health of the economy. 

For Western Australia, its once-in-a-lifetime economic expansion has placed considerable strain on the state's existing infrastructure to the point where bottlenecks have the potential to restrict further development and business expansion. As such, it is important that the Federal Government (in conjunction with state governments and industry) allocates a large slice of the $20 billion Building Australia Fund to build up the state's capacity and encourage sustainable growth for many years to come.

As part of the process of prioritisation, the Federal Government is planning infrastructure feasibility studies with the states on high-priority projects, at a cost of $75 million in 2007-08. For Western Australia, the budget explicitly identified the feasibility of developing an integrated transport plan for Perth airport, which is a key infrastructure priority for WA.

The Government has also 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% of Australian homes and businesses.

The Federal Government's decision to inject an additional $11 billion into the nation's education system is also an important investment for the future, given the pronounced skill shortages evident not only in WA but across the nation. This additional investment is complemented by the announcement of an additional 31,000 skilled migration places as part of Australia's 2008-09 migration program.

In relation to taxation, there were a number of taxation changes, with cuts to personal income tax, increases in excise on "ready to drink" alcoholic beverages, and the tightening of FBT exemptions. In addition, the Government announced the removal of the exemption of condensate from crude oil excise, which may have implications for Western Australia's oil and gas industry.

Against these changes, the Government also announced a commitment to undertake a comprehensive review of business and personal taxes. It is important that the review lead to genuine reform of both federal and state taxes.

Overall, CCI believes that the budget will be good for the Australian economy, and is pleased steps have been taken to curb spending and reduce the overall tax burden, with strong budget surpluses over the next four years to be directed into investment funds to build the capacity of the economy in priority areas.

By John Nicolaou

Chief Economist,
CCI Economics and Industry Policy