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2006 Federal Budget Implications and Outlook. Simon Pomfret IRIS Research. Outline. China & Oil The interest rate rise we needed to have??? Highs and lows for the local economy Budget Initiatives. Longest Period of 4%+ growth since the oil shock. World Growth by Country. Asian roundup.
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2006 Federal Budget Implications and Outlook • Simon PomfretIRIS Research
Outline • China & Oil • The interest rate rise we needed to have??? • Highs and lows for the local economy • Budget Initiatives
Oil Prices now higher in real terms than any time since September 1982
The Chinese Story.. • Exports $16 Billion • Iron Ore $6 B • Wool $1.3B • Copper ores $0.6B • Coal $0.5 B • Imports $21.3 B • Clothing $3 B • Computers $2.4 B • Toys, games & sporting $1.1B • Telecommunications $1.1 B • Trade in services • Education $1.5B
After slowing in 2005, domestic economic activity has picked up in early 2006
Growth is having varying impact on relative performance of state economies – domestic spending
Economic context for preparation of the Budget • World is a rosy place • US solid growth • Economic recovery in Japan-Australia’s largest export market • Growth continues in China – Australia’s second most important export destination • Rest of Asia is solid • Australia income is growing strongly on back of commodities • Households are cautious but evidence of slight pick-up retail sales are up
Housing construction activity continuing decline-current downturn quite mild • High dollar going to impact on exporters • Nationally everything looks ‘just right’ • However….. current signs suggest a flat 2006 for business in the region. • Building activity low • Spending tight • Labour market is softer • Exporters squeezed by the strong dollar
Key Budget Forecasts • Despite spending, still $10.8 Billion cash surplus • Personal tax cuts of $36.7 billion over four years • Salary of $100,000 will be $2700 better off a year, or $51.90 a week • Average wage earners on $55,000 a year will take home an extra $510 a year, or $9.81 a week. • GDP forecast of 3.25% up from 2.5% • Unemployment 5.25% • Inflation 2.75%
Local Goodies??? • Additional injection for local roads as a supplement to Auslink roads to recovery programme • Increased places for medical students • New programmes to encourage skills development New national approach to apprenticeship, training and skills • Regional skill pilot projects • Additional funding for New Apprenticeship Centres
More Local Goodies??? • Increase investment in medial and health research • $12 M to UOW construction of MPF for Centre for Transnational Crime Prevention • Funding to encourage local businesses to establish and maintain key services at regional campuses. • Provide additional funding to assist universities in the transition to voluntary unionism
Parting shots • The Costella Coffers are over flowing • Tax cuts again for all and sundry-especially the high earners • Is this going add to inflation pressure & make another interest rate increase more likely? • Still have the head winds of higher petrol prices • Offset the political damage of last week's interest rate hike and rising petrol prices. • Building Strong war chest for next years election • Better spent on Infrastructure initiatives