Budget 11-12 heavy on rhetoric

IT is against the backdrop of a high and rising Australian dollar and booming commodity prices and strong export volumes that Treasurer Wayne Swan revealed the2011-2012 Federal Budget on Tuesday night.
With such an ongoing emphasis on the boom, to my mind this Budget and its forecasts are at risk of building foundations into shifting sand.
Perhaps the greatest uncertainty the Government faces in delivering what it suggested would be a tough budget was the volatile political climate.
But my immediate concern is that too much of our future prosperity and the structure of the Budget hinges on the continuation of the mining boom. With that the case, it exacerbates the risk that the so called ‘rivers of gold’ will camouflage serious structural problems in fiscal policy.
By way of example, the 2010-2011 Budget deficit turned out $8 billion larger than was predicted last year, demonstrating the volatility inherent in these predictions.
Therefore, farmers were looking for a Budget on Tuesday night with greater vision and one that recognised the agricultural sector as an ongoing performer that will continue to drive the economy beyond the mining boom.
For every extra dollar that we earn through the mining boom, if that dollar is misspent or adds to structural problems in the Budget, then we are in a riskier position than we were before.
The Treasurer did not allay these concerns, and there was scant mention of the risks.
The heights of the Australian dollar are not solely linked to our currency being a proxy for economic growth in China. The rise is also due to the ongoing weakness in the US dollar.
Therefore, without wanting to sound pessimistic, there are no guarantees that an end to the boom would mean a respective drop in the dollar.
Should that occur, our export producers and the tourism industry will be in serious strife.
This week several prominent economists predicted that the dollar could reach 130c in 2013 and 170c in 2014.
Therefore we needed a Budget that gave farmers and the community the confidence that Government is properly managing the boom, and preparing for the possibility of the boom fading.
We only partially received that.
So what’s in it?
Rural research and development has been spared from the razor. This is a sensible decision that makes long term economic sense, and recognises the importance of agricultural productivity growth now and in the future. But this is the second year that investment in this area has at best plateaued in some areas. So over the medium term R&D investment is going backwards
There is also funding for mental health, skills training, and a focus on skilled migration workforces entering the regions, all of which are welcome.
However, it is disappointing that Queensland farmers must wait at least another year before being able to prepare for the next drought.
Drought reform has already dragged on too long, and that delay is now longer with the announcement that the drought pilot program will continue for an extra year in Western Australia (over a larger area with more funding).
This reform is designed to prepare farmers for drought and climate risk management, so we are frustrated by this ongoing delay.
Likewise, we are still waiting on further detail on the Carbon Farming Initiative.
We welcome the increased flexibility around Farm Management Deposits for those recovering from natural disaster, with the Government proposing a $5000 instant asset write-off for small business to cover capital purchases such as motor vehicles.
There were some cuts in the Budget as well. The fringe benefit tax rules were tightened around company cars, which is a change that seems to forget the vastness of States such as Queensland.
Before changing these rules, the Government faced pressure from the Greens and some examples of misuse of company cars in urban areas – and therefore took the easy option and axed the benefits across the board. It was an uninspiring means of dealing with a difficult policy decision.
I acknowledge that the Treasurer has had a difficult task of framing this Budget in the context of massive natural disasters, with the floods and cyclones to cost the economy about $9 billion and reduce real GDP growth by half a percentage point in 2010-11.
It is a lesson for the Government – which farmers already know – things don’t always go to plan.
In the end, farmers may be relieved that they have been spared from major pain in this Budget. This pain may come when we see Budget Mark II with the inclusion of the carbon tax later in the year. Agricultural organisations have pretty much said the same thing for years now: we need a strong biosecurity system, strong and growing investment in research and development and investment in risk management particularly in relation climate.
It is shame this year, the Government has failed to deliver something visionary, something that looks beyond electoral cycles and marginal seat politics.