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Federal Budget 2003

Just let 'em feel that you can save 'em something on taxes and nobody will keep you out.

Warren Buffett

Mid-term Budgets are often the least interesting - especially when Government's are well-established. A treasurer's standard approach to the electoral cycle is: do the hard stuff in the first Budget; don't scare the horses in the second; offer a lump of sugar in the third so that they rush to vote for you in the election which follows.

That's the theory. In practice, the unexpected sometimes turns up. When the smokey is a mid-term tax cut, it usually means one of three things: the Government is in trouble; the Government feels an early election coming on; or by spending its money now, the Government wants to prevent its Opposition spending it later. Whichever, surprise is of the essence. And it helps to have a distraction.

So this year Peter Costello must have been overjoyed to find that his Labor opposition have created the smokescreen for him. Who can recall a year when - even before its delivery - the Budget was already dwarfed politically by the Opposition Leader's response to it? Once Kim Beazley announced that Simon Crean's speech in reply would determine his fate, Crean in the Colosseum became the main political game for what Joh Bjelke Petersen used to call 'the chooks' of the media. The Governor-General's travails reduced the focus on this year's Budget still further. And then the Indonesian government kindly began the Bali bomber trial this very week. Not since Elvis died on Budget Eve in 1977 has Budget anticipation been so overshadowed by other events.

Mr Costello won't be complaining. While attention has been directed elsewhere, he has been able to get on quietly with the task of presenting a clever but cynical Budget. He has handed back only a tiny portion of his bracket-creep windfall. But in doing so, the treasurer has neatly positioned the Government for a tax-cut-centred poll later this year - when Crean, Beazley and the ALP could be drowning in blood and gore. And if his prime minister decides to go full term, the Opposition is nicely hedged in by his spending much of the surplus this year. In trying to develop an attractive program, Labor will inevitably face the old cry of 'Where's the money coming from?'

The Budget spends heavily on defence and security which will be electorally-popular too. The costs of war in Iraq are met with additional spending of more than $2 billion over five years. Total defence spending rises to more than $15 billion.

Yet for all its superficial political attractions, there are potential vulnerabilities. The Budget's controversial changes to Australia's health system were made public well ahead of Mr Costello's speech. They are certain to increase costs for average families and to date seem unpopular. Now they are joined by radical plans for overhaul of higher education which threaten many students with sharply-higher fees. Both offer an electoral lifeline to the Opposition if it can move beyond internal brawling; both face difficulties in the Senate, which might add fuel to any early election fire. And there are disappointments. There are no measures to assist Australians balance work and family responsibilities, despite recent Government pronouncements on the subject's importance. There is silence on maternity leave.

Overall, Mr Costello will be pleased with himself. Thanks to huge increases in taxation revenues, he has been able to meet many competing demands and still claim a $2.2 billion surplus - quite a platform from which to boast of further sound economic management. A solid surplus AND tax cuts is something few of his international counterparts can even dream of. And this has been achieved despite the high-profile challenges of war, drought and fire.

So far, still calm for the good ship Australia whose captain can add an armour-plated 'economic miracle' to his new man-of-steel image. But storm clouds gathering over the world economy will have the treasurer casting nervous glances at the horizon. The US federal reserve is growing increasingly concerned about deflation; Europe and Japan are struggling; sharemarkets everywhere remain sluggish despite the quick victory in Iraq; the SARS outbreak is hitting Asian industrial activity hard; and international airlines and tourism are in a parlous state.

The conjunction of these negative factors does not encourage optimism about the direction of the world economy. The Budget has marked forecast growth down to 3.25 per cent. While this remains a thoroughly respectable number, it will mean little if the world in general - and the USA in particular - turns seriously downward. Mr Costello will be crossing fingers, toes and everything else against such a development.

In a nutshell

A budget surplus of $2.2 billion
GDP growth of 3.25%, up from 3%
Inflation at 2.75%, down from 3.25%
Business Investment 7%, down from 15%
Current account deficit 5.25% of GDP, down from 5.75%
Employment growth 1.75%, down from 2.25%
Unemployment steady at 6%
Average wages 4%, up from 3.25%
Education up by 6.6%
Housing down 5%
Household spending 3.25%, down from 3.75%
Defence and security up 6.3%
Health up 5.4%

Employment

Employment growth will fall to 1.75 per cent in 2003-2004, from a strong 2.5 per cent this year. Unemployment remains at around 6 per cent. The participation rate is also steady at 64 per cent.

Wages

Average earnings are tipped to rise by 4 per cent. But taxation will take a greater share as the Government confirms its highest-ever take of 25.1 per cent of GDP this year.

Industrial relations

The most significant item is the linking of higher education funding to non-union Australian Workplace Agreements [AWAs]. AWAs have been a dismal failure since their introduction in 1997 with less than 2 per cent of Australian workers covered by them. The Budget's blatant force-feeding of them to higher education workers will not be popular. And so much for the Government's claims that it is not anti-union but pro-choice in industrial realtions. There is no choice in this policy.

Superannuation

Most superannuation policy holders will breath a sigh of relief. At a time when most are experiencing their second successive year of negative results, no further fiddling with the system is about the best Budget news they could have had.

Communications

The triennium-based funding for the ABC and SBS will continue for 2003-2004 to 2005-2006. Funding for the ABC will include Radio Australia, ABC Asia-Pacific, and digital interference. SBS will continue to receive additional funding for purchasing overseas publications plus funding for digital interference.

NetAlert continues, just...

NetAlert, the independent body established under the Government's online regulatory scheme, will be provided with $750 000 per year for the next three years in order to continue its work of promoting internet safety, particularly for children, and to conduct research into internet access management technologies. Of this budget allocation, $500 000 will be transferred from the Australian Broadcasting Authority and $250 000 from existing Department of Communications, Information Technology and the Arts resources. The control of internet access has implications for libraries and their users and is consistent with the focus of the Government on security, reflected in Attorney-General's portfolio allocations.

Research

The Australian Research Council will receive an additional $143 million for its National Competitive Grants Programmes Linkage and Discovery. The Co-operative Research Centres will receive an additional $55 million in 2003-2004. CSIRO will receive an additional $20 million to fund its National Research Flagships programme. The establishment of a taskforce to develop a national strategy on research infrastructure for public higher education institutions and publicly-funded research agencies. The establishment of a taskforce to examine scope for greater collaboration between universities and major publicly funded research agencies. $124 million of Backing Australia's Ability funding in 2003-2004 for the Systemic Infrastructure Initiative and the Research Infrastructure Block Grants. The research and development program for business will be extended to 2007 with an additional $41 million. In 2004, the Government will announce a new set of science and innovation measures as the successor to Backing Australia's Ability. $7.3 million to the ANU to assist with the restoration of the research and teaching capacity of the Mount Stromlo Observatory and the Research School of Astronomy and Astrophysics.

Commonwealth publications

The Government Bookshop network is to be closed. In a new business model for the distribution of Commonwealth Government publications the National Office for the Information Economy will be responsible for building a panel of external contractors to print and distribute individual agency publications. A central electronic register of government publications is to be developed.

Review of cultural agencies

The Commonwealth Government has accepted recommendations of the above review. Some of these recommendations are:

Questacon, the National Science and Technology Centre, will move from the Department of Communications, Information Technology and the Arts portfolio to the Department of Education, Science and Training portfolio.

ScreenSound Australia and the Australian Film commission will be integrated.

The above changes will take effect on 1 July 2003.

Funding of the National Institute of Dramatic Art will be increased by $4.2 million over four years to support building and to allow the Institute to enhance its programme in order to take advantage of the new facilities. Bundanon Trust (Arthur Boyd's gift to the Nation) will receive $2.4 million over the next four years to help the Trust to overcome the financial difficulties that it has been experiencing.

National cultural institutions

The following institutions will be receiving decreased resourcing in the 2003-2004 budget: National Library of Australia, National Gallery of Australia, National Museum of Australia, and the National Office for the Information Economy.

Depreciation and preservation of national collections

The budget reduces funding for the depreciation of cultural and heritage assets by $1.3 million in 2003-2004 increasing to $2.2 million in 2006-07. The reductions compensate for increased funding to the National Institute for Dramatic Art and the Bundanon Trust. The affected agencies are National Archives, the National Gallery and the National Museum.

Revised funding and depreciation arrangements follow the recommendation of the Government's 2002 Review of Cultural Agencies that the agencies review their accounting treatment of cultural and heritage assets. Preservation funding is to meet the following criteria:

Flexible so that the agencies can meet their diverse preservation needs
Appropriately resourced for long term preservation
Consistent in application across agencies
Transparent and accountable to government
Predictable from a Commonwealth budget perspective

Distinctively Australian

The Commonwealth Government will provide new funding for 'Distinctively Australian' a new programme for identifying, managing and promoting Australias national heritage places. Some of these places will be outside of Australia, for example Anzac Cove. The package is to be based on the heritage information currently before parliament. The package will receive $52 million over four years.

Regional, rural and remote Australia

Economic performance

Economic growth in 2002-2003 is expected to be around 3 per cent. The budget predicts an increase to 3.25 per cent in 2003-2004 with farm production contributing significantly to this increase if the drought breaks as expected.

Regional partnerships program

Key Federal government regional development programs (with the exception of the Sustainable Regions program) have been combined into a single Regional Partnerships program that will focus on supporting projects that strengthen economic and social growth, improve access to services in small communities, support regional planning and help specific regions adjust to structural change. $277.2 million over four years is allocated, including new funding of $61.8million.

Access to government services

The More Accessible Government programme and the Commonwealth Regional Information Service (a free-call referral and information service for Commonwealth government programmes and services for country Australians) are intended to deliver greater co-ordination and flexibility from government. Additional funding of $3.8million over four years will assist the Department of Transport and Regional Services to maintain its network of regional offices.

Drought relief and disaster mitigation

$750million over four years from 2002-2003 includes income support and interest rate subsidies assisting primary producers and regional businesses.

Funding of $68.5million over five years includes establishment of a new Disaster Mitigation Australia package to support cost-effective mitigation policies. Commonwealth funding is conditional on matching funding from the states and territories.

Health

Changes to Medicare include measures intended to address the shortage of doctors in rural and outer-metropolitan areas. The number of places in medical schools around Australia is to increase by 234 a year and the number of GP training places by 150 a year, targeted to areas of doctor shortage.

Targeted rural health and aged-care measures include increased subsidies for rural obstetricians and improved access to treatment and referral for illicit-drug users in rural and regional areas.

A learning scholarships program will be introduced to help rural, regional, low-income and indigenous students with the costs of attending university.

Arts and heritage

Creative Volunteering, the National Arts and Museums regional volunteers skills project is funded to train up to 15 000 volunteers in up to 100 regional communities.

Transport

Funding to expand and maintain the transport infrastructure includes $1282.7million on roads in regional Australia. Work on Auslink, the national integrated land transport planning framework will continue.

Education and training

Reform of higher education forms the centrepiece of this year's budget. Based on four principles, sustainability, quality, equity and diversity, the government's integrated package of reforms, Our Universities: Backing Australia's Future, will impact on universities, students and other stakeholders.

Higher education

Aimed at enabling institutions to maximise new opportunities, access to increased funding will, however, be contingent upon the universities undertaking management and industrial relations reforms.

From 2005 a fund of $404.3 million will be distributed over three years to universities which meet government guidelines on National Governance Protocols developed by the government, and also comply with workplace relations policies, in particular the option of negotiating Australian Workplace Agreements. Funds through the scheme will be released on an incremental basis beginning at 2.5 per cent per student in 2005, rising to 5 per cent in 2006 and 7.5 per cent in 2007.

The government will work to introduce voluntary student unionism by proposing a bill to make illegal the collection of student union fees by universities on enrolment.

Student support

The current HECS scheme will be incorporated into a new Higher Education Loan Programme (HELP) and will be known as HECS-HELP. From 2005, universities offering HECS places in course will be able to determine the amount of the student contribution within ranges set by the government. No minimum level for student contributions has been set so this is likely to lead to the student contribution for a particular course differing between institutions, thus offering students a broader range of options for study.

Two other components of HELP will offer access to loans from 2005 to full fee paying students and Australian students wishing to study part of their course overseas. Through FEE-HELP, full fee paying students will be able to access a loan, to a limit of $50 000 for the course they are undertaking. OS-HELP will enable undergraduate students in Commonwealth support places at public higher education institutions to seek a loan of up to $5 000 per semester to complete one or two semesters study abroad. Interest of 3.5 per cent for 10 years on top of indexation will apply to loans offered through FEE-HELP and OS-HELP.

Indigenous students

Indigenous students continue to be under-represented in higher education. To enable institutions to provide greater assistance to indigenous students, an extra $10.4 million will be made available over three years to 2007 through the Indigenous Support Fund.

A series of scholarships will be made available for indigenous staff, both academic and general, in higher education institutions who have encouraged indigenous students to pursue higher education study. Staff will be able to take one year's leave to study further in their academic or professional area. Five scholarships per annum, covering tuition fees and offering a non-taxable stipend, will be awarded from 2004.

Higher Education Equity Program

While extra funding will be made available in 2004-2005 for this program ($2.3 million) and the Students with Disabilities program ($2.4 million), a review of the equity groups established in 1990 to assist students to enter university will be undertaken. Groups cover people from a non-English speaking background; people with disabilities, people from rural and isolated areas; women in non-traditional areas of study; and people from socioeconomically disadvantaged backgrounds.

Significant advances in participation in higher education have been made for some of these groups. The aim of the review is to ensure that the program maintains an ongoing focus on groups experiencing significant disadvantage.

Scholarships

A total of 2 500 Commonwealth Education Costs Scholarships (CECS) worth $2000 per annum for up to four years will be made available in 2004. This number will rise to 5075 by 2007. Priority for these scholarships will be given to indigenous students and those from a low socio-economic background.

Students from rural and remote areas who have to move in order to undertake higher education study will benefit from Commonwealth Accommodation Scholarships which will offer $4000 per annum for up to four years to assist with accommodation costs. 1500 scholarships based on academic merit will be offered in 2004 with the number rising to 2 030 by 2007.

Excellence in teaching and learning

The National Institute for Learning and Teaching in Higher Education will be established in 2004 from existing program funds. The institute's function will be to enhance learning and teaching in Australian higher education institutions. The Australian Universities Teaching Committee will oversee the institute which will be run by professional staff with expertise in teaching and learning at higher education level. From 2006, the institute will receive $21.9 million per annum, $2.5 million for administration and $19.4 million for grants and other activities.

Regional loading

Regional campuses will attract a funding loading ranging from 2.5 per cent to 30 per cent according to size and degree of remoteness. The loading recognises that extra costs incurred for travel and freight and also the diminished ability of such campuses to attract full-fee paying students and to enter into business partnerships. Regional campuses will be recognised in one of four bands, based on two criteria: size of institution and distance from nearest mainland State capital.

International education

A total of $113 million has been allocated to support and expand international education in Australia. During the next four years, this program will support four International Centres of Excellence in education, science and innovation at Australian universities; enforce quality assurance measures to enhance the integrity of Australian education providers who enrol overseas students; establish the Endeavour scholarship and fellowship programme to attract high performing students from around the world; develop a framework to enhance quality assurance for international students studying offshore; set up a National Language Centre to increase the skills of Australian business and professional people in this area; increase promotion and government to government work to further develop export opportunities.

Schools

Some $2.5 billion is to be provided in 2003-2004 for government schools and students. This represents a 5.5 per cent increase on last year and a 60 per cent increase in funding since 1996. These substantial levels of funding have contributed to the good progress made in literacy and numeracy. A further $210 million over four years has been committed to assist in the continuing improvement of literacy and numeracy among Australian school children.

The National School Drug Education Strategy will continue with a total of $5.3 million allocated to help school communities provide safe and supportive environments for students.

The Capital Grants Programme will continue, providing some $249 million for government schools and $97.9 million for non-government schools. Non-government schools will continue to receive recurrent funding based on the socio-economic profile of areas from which students are drawn.

Vocational education and training

To ensure that vocational education and training continues to underpin the nation's strong economic growth, a new Australian National Training Authority (ANTA) agreement will prioritise quality outcomes and on meeting skill shortages in industry. This is backed by a budget allocation of $2.1 billion.

Each year about 13 per cent of the working-age population takes part in vocational education and training. Indigenous Australians and those in rural and remote areas are now participating in increasing numbers.

Government initiatives since 1996 have seen increased participation in what is becoming a national vocational and education training system. $2.8 billion over four years has been allocated to further build on the New Apprenticeships scheme which at the end of last year had 375 000 in training.

Overseas aid

In 2003-2004, Australia will commit a total of $1.894 billion to overseas development aid which represents an increase of some $79 million since the previous year. Total aid to the Pacific area will increase by 4.3 per cent in this financial year. Key features of the aid program to the Asia-Pacific area include the establishment of a Peace and Security Fund to enable flexible assistance targeted to needs throughout the area; the development of a security framework to counter trans-national crime and terrorism; aid to Indonesia to be increased to $152 million to support improved governance and delivery of basic services; continuing support of Papua New Guinea to improve economic and public sector management; $94 million to support programs enhancing sustainable management of fresh water resources and services in the region including India and Vietnam.

Australia's aid program will contribute to international efforts to reduce poverty, especially in Africa. Funding for humanitarian, emergency and refugee aid will increase by $132 million and Australia will play a significant and constructive role in the reconstruction of Iraq with some $100 million committed to humanitarian relief and reconstruction.

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