Outlook solid, politics the issue with budget

The first Abbott-Hockey budget delivers a mild fiscal tightening in the 2014-15 year with most of the announced savings not hitting until after the 2016 election. The biggest changes will not arrive until after the four-year estimate period.

Headline changes are around the structure of government payments and receipts with a reduction in welfare, health and education spending as well as the first steps in reforming retirement income arrangements.

These are essential to put the budget on a sustainable footing as the population ages and spending commitments, including in health, grow.

Many of the biggest budget savings in the medium to long term are from shedding spending commitments in health and education to the State governments.

Overall, the economic dimensions of this first effort by Joe Hockey are sound and should reinforce the government’s improving fiscal position and modest debt levels.

Given the strong focus in reigning in welfare, health and education commitments, the real challenge will be the strongly negative political reaction the budget is likely to produce, not least from the Labor Party and the Greens.

Read the full Australian Commonwealth Budget Report, 2014-15. 

Figure 1. Major implications for household finances