On Tuesday, May 10, the federal treasurer Peter Costello delivered his tenth Budget.

Key issues to emerge include:

• An estimated underlying cash surplus of A$8.9 billion ($6.7 billion) or 1% of the gross domestic product or GDP (fiscal A$7.4 billion) for 2005-06, compared with an estimated A$9.2 billion (fiscal $7 billion) for 2004-05. The underlying cash surplus projected for 2006-07 is A$7.9 billion, or 0.8% of GDP.
• The inflation rate (consumer price index) projected at 2.75% for 2005-06, compared with the forecast 2.5% for 2004-05.
• Real GDP growth is expected to be 3% for 2005-06, compared with forecast 2% for 2004-05.
• The unemployment rate is forecast to be 5% for 2005-06, compared with forecast 5.25% for 2004-05.
• The current account deficit is projected to be $A48 billion ($36 billion) forecast for 2005-06, being 5.25% of GDP, compared with a record-breaking deficit estimated at A$56.25 billion for 2004-05.

Companies in Australia can look forward to:

• business tax cuts of A$1.8 billion over four years, including removal from May 11 of the 3% tariff applying to business inputs where no substitutable goods are manufactured in Australia,
• from July 1 2005 tax relief for a range of so-called blackhole expenses, including certain pre-business costs that are not recognized at the moment;
• abolition of the superannuation surcharge for superannuation contributions made from July 1 2005; and
• increase skilled migration places by 20,000 in 2005-06 to a record 97,500.

The Budget also includes personal income tax cuts, costing A$21.7 billion over the next four years, building on the A$14.7 billion tax cuts over four years promised in last year's Budget. The reductions are as follows:

• from July 1 2005 the 17% marginal rate will be cut to 15%;
• from July 1 2005 the 42% threshold will increase from A$58,000 ($44,000) to A$63,000 and the 47% threshold from A$70,000 to A$95,000;
• from July 1 2006 the 42% threshold will be further increased to A$70,000 and the 47% threshold to A$125,000.

The Budget also included the welfare-to-work measures that include:

• new stricter eligibility criteria (essentially they must be incapable of 15, rather than 30 hours work each week at award wages) for those seeking to go on the disability support pension (DSP) on or after July 1 2006;
• the new criteria also applies after July 1 2006 to those seeking to go on the DSP between May 11 2005 and June 30 2006;
• from July 1 2006 a reduction in the maximum withdrawal rate from 70 cents to 60 cents in the dollar for those on Newstart (unemployment benefit), with the ability to earn A$250 each fortnight (compared to A$142 now) before withdrawal begins;
• single and partnered parents now receiving the parenting payment will be required to seek work voluntarily from the later of July 1 2006 or when their youngest child turns six, with parents applying on or after July 1 2006 for the parenting payment losing the entitlement to the payment when their youngest child turns six.

The extra spending commitments include:

• A$2 billion over the next four years in new and expanded services to help those with new work obligations to find and keep a job;
• A$317 million to pay in June 2005 a A$1,000 bonus to recipients of the carer payment and a A$600 bonus to recipients of the carer allowance; and
• extra health spending over four years of A$250 million on dementia care, A$207 million towards the health care of senior Australians and A$142 million strengthening cancer care.

Neil Wilson (neil.wilson@au.pwc.com), Sydney