This budget will be popular, but from an economic perspective, if it looks too good to be true, it probably is.
As expected, the centerpiece of this budget is increased infrastructure spending such as the Inland Rail project, a new Housing Affordability plan, Gonski 2.0, and increased emphasis on the operating fiscal balance ('good' versus 'bad' deficits).
What was not expected was the new tax on banks liabilities – and at $6 billion over the next four years it is not small.
It is too early to say how banks will react.
On the infrastructure front, key elements include the second Sydney airport; the Melbourne to Brisbane rail freight line; Snowy Mountains hydro electricity funding, and regional growth connectivity initiatives.
The package is valued at around $75 billion over 10 years.
For smaller business (up to turnover of $10 million a year) the $20,000 instant write-off has been extended.
New initiatives include Gonski 2.0 (an extra $18.6b in school funding in the next decade); higher repayments on government education loans, and a 2.5pc efficiency dividend on universities.
The health package includes the phased unfreezing of Medicare rebates for doctor visits and reduced costs for medicines.
The National Disability Insurance Scheme (NDIS) is to be fully funded via a Medicare levy increase of 0.5pc to 2.5pc in mid-2019.
There is now going to be a one-stop shop for bank complaints and possible deregistration, plus large fines for bad behaviour.
The government is emphasising the net operating balance – effectively the underlying cash balance less net investment on the government's balance sheet which returns to surplus a year earlier in 2019-20.
At National Australia Bank (NAB) we have no objection to separating government debt into “business as usual” spending from “productivity enhancing investments”.
The key is whether the investment really is productivity enhancing.
That said, all debt has to be repaid.
Our view is the budget implies a further slight drag on growth near-term, but a sharp drag thereafter.
We are much more cautious on 2018-19 forecasts and beyond when the economy, in our view, will be running nearer 2.5pc than 3pc-plus.
We are very sceptical about the wages forecasts – and hence nominal gross domestic product (GDP) estimates.
As such, we don't believe the medium term fiscal projections – and hence the credibility of the budget’s fiscal profile.
What’s in it for ag?
Among the budget’s new measures for agriculture is the big $8.4b to build the Inland Rail project from Melbourne to Brisbane.
It will run across a mix of existing (upgraded) and new track.
The freight-only project will cut freight journey times from Melbourne to Brisbane by bypassing Sydney, improve efficiency with double stacking and higher axle loads and provide much improved supply chains (especially for farmers) in inland NSW.
It is expected to cost around $10b, commencing construction in 2017-18.
An $8.4b equity investment in the Australian Rail Track Corporation (ARTC) should finalise funds for the project as previous budgets having already allocated more than $1bn.
Regional growth funds
The government will provide $28.5m to establish the Regional Investment Corporation (RIC) to administer $4b in concessional loans (already budgeted), including the $2b National Water Infrastructure Loan Facility and the $2bn Farm Business Concessional Loan Scheme.
The Regional Growth Fund (RGF) will invest $472m over the forward estimates in regional infrastructure projects.
This includes $272m for grants and $2oom to the Building Better Regions Fund.
Instant asset write-off
The $20,000 immediate asset write-off provisions for small businesses have been extended to June 30, 2018, but there is no certainty beyond 2018
Farm Business Concessional Loans Scheme eligibility will be extended but under the existing $250m of loan funding allocated for 2017-18.
About $8.3m will go to the Australian Livestock Exporters' Council to implement the Livestock Exports Global Assurance Program.
Relatively minor industry levy changes will meet biosecurity and research and development funding for bananas, avocados, seed cotton, tea tree oil, Thorougbreds and laying chickens.
About $1.1b is to be provided over seven years from 2016-17 to the National Landcare Program.
Some of the work includes the Sustainable Agriculture Small Grants Program and new Indigenous Protected Areas aimed at natural resource management.
This does not represent new funding, with $100m already allocated, however, the budget gives the existing scheme additional certainty.
- Alan Oster is National Australia Bank’s group chief economist. Phin Ziebell is NAB’s senior agribusiness analyst