source: http://www.budget.gov.au/

The only way I could make some sense of the budget was to go back 12 months and look at the forward estimates over 3 years and compare it to today's forward estimates over 3 years. What this budget really is all about is a sky-rocketing estimate of Gross Domestic Product over the next 3 years. I respect Treasury's ability to make forward estimates, and really only comment on the implication (as investors) that Gross Domestic Product will jump by $432 Billion, from $1,223 Billion last year to $1,655 Billion in 2014. This is over a 35% increase in GDP. Wow.

It took from June 2005 until December 2009 for GDP to increase by 35% (from $926B to $1,260 B: source RBA Statistics G12). The Government consistently maintains taxation at around 25% of GDP over time. So the total forward estimates project an increase of $152 B in revenue, $47 B increase in expenses, a reduction of $10 B in capital expenditure (is this the NBN roll out being counted as an investment, rather than an expense?), for a total improvement in the bottom line of $115 B.

Over the last 12 months annual GDP has only increased by 1.7%. So even though, on balance, we have had a buoyant economy over the last 12 months, the Government is predicting an accelerating economy. Banks balance sheets need to reflect, to a large degree, the growth in GDP. That means that the Banks will be much larger, and presumably more profitable, by 2014. An expanding economy of this magnitude will maintain the boom times in the housing market and presume a great recovery in commercial lending. It also presumes a buoyant (well taxed) resource sector.

Hopefully it is not just a prediction of inflation, but interest rates certainly seem to be on the rise. Welcome back to the boom times (maybe).