We were told that this would be a tough budget, and the Government's mantra has held true. The Treasurer has had the unenviable task of choosing between multiple deserving reforms, while delivering a $1.5 billion budget surplus in the face of plummeting tax receipts.

In terms of the broader economic narrative, the return to budget surplus is intended to demonstrate the Australian economy's full recovery from the global financial crisis. But the economic data shows the limitations of this recovery. Many industries continue to experience slow growth, and certain regions, such as Victoria, are already growing at below trend rates. The Government's response to this is to structure a budget that is designed to spread the benefits of the resources boom.

Whilst there were a number of significant announcements and leaks prior to the budget, the question on everyone's lips was "Where is the surplus coming from?". We can now reveal the answer:

  • Non-residents (through increases in Managed Investment Trust withholding, Living Away From Home Allowance reforms etc.); and
  • High income earners (through changes to employment termination payments and superannuation).

The key positive tax measures, such as loss carry-back and small business write-offs, were previously announced. But business will be pleased they have not been funded by cuts to R&D incentives and changes to thincapitalisation.

Due to the tough budgetary constraints there are limited new infrastructure and transport initiatives. The first new initiatives will kick in during the 2014-15 year.

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