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Understanding the Federal Budget

Since being released, the 2016 Federal Budget has been receiving widespread coverage within the Financial News. There is a plethora of information covering the key inclusions in this year's Federal Budget. Everyone from the young and those that are struggling, to the much older and those that are much more comfortable, have been impacted. Within this blog article, we take a look at the actual make-up of the Federal budget itself. Read on, arm yourself with an overview of what the budget actually is, why it’s so important and how to read it!  What is the Federal Budget? Governments in general are responsible for providing a myriad of services for their citizens, from defence and education, to running water for homes. Just like any other large organisation, it takes lots of resources to keep the Australian Government functioning efficiently. The accounting statements that outline its projected income and outgoings — as well as fiscal policy proposals — are collectively known as “the Budget”. How often is it released? These statements are prepared each year by the treasurer, and presented to Parliament and the general public at the end of each financial year, usually on the second Tuesday of May. What does the Budget contain? The Federal Budget includes detailed information on the Australian Government’s revenue and expenditures, its objectives and priorities, plus how it plans to utilise resources to achieve these. This is broken down in various ways, such as portfolios (like Health, Infrastructure/Transport, Education etc.) and serves as the Government’s short- to medium-term strategic plan. Where do the funds come from? Governments get their money from taxes. Income tax is usually the largest source of revenue. Other income avenues include fringe benefit tax, superannuation tax and fuel tax. What is a “surplus” and “deficit”? It’s never the case that a Government spends exactly what it raises in taxes, so in any given financial year there is either a budget surplus (“in the black”), or a budget deficit (“in the red”). Countries that run budget deficits have to draw from savings or, lacking those, borrow. Nations that run a budget surplus are able to pay down debt and build up assets. In this sense, Governments are no different really to an individual or family. Where to start? The Federal Budget comprises of four papers. Firstly, Budget Paper No. 1: Budget Strategy & Outlook contains details on:
  • Which types of tax raise the most money (“Statement 4: Revenue”).
  • Where money is spent (“Statement 5: Expenses & Net Capital Investment”).
  • The level of federal government debt, how fast it’s increasing or decreasing, and the economy’s capacity to manage it (“Statement 10: Historical Australian Government Data”).
  • Projections for a further three years (“Statement 1: Budget Overview”).
How about Budget Papers 2, 3 and 4? As far as what the other documents include:
  • Budget Paper No. 2: Budget Measures contains the finer details of revenue and spending by Government departments and programs.
  • Budget Paper No. 3: Federal Financial Relations outlines any payments from the Commonwealth Government to the State and Territory Governments.
  • Budget Paper No. 4: Agency Resourcing provides information on budget resource management, including staff resources.
So why, as citizens, is it important to understand the Federal Budget? Being a democracy, in theory, this process holds the Australian Government accountable for the choices it has made throughout the year and allows taxpayer/voters to evaluate whether or not the Government is steering the nation down a path of prosperity.