“Economically it provides a mild stimulus not thought likely to prompt interest rate rises, initiatives designed to improve productivity and increase the workforce should be positive for continuing office demand,” says Mr Sears.

“A modest boost to superannuation contributions will keep demand for investment property strong and tax cuts and a Seniors bonus will benefit retailers as will additional support for small business, and continued spending on roads and rail will be of benefit to the transport industry,”  he says.

Below is a summary of Mr Sears’ findings:

Economy:
• The Government is targeting a surplus of around 1% of GDP, down a little from the 1.3% achieved in 2006-07.  Generally this is seen as not adding much in the way of new stimulus to the economy and therefore, in itself, is unlikely to generate the need for further interest rate rises.
• Australian economic growth is forecast for 2.5% in 2006-07, accelerating to 3.75% in 2007-08.  Though the risk is for weaker growth if the drought continues as the forecast assumes a return to more normal rainfall conditions.
• World economic growth was a strong 5.5% in 2006 and is expected to ease to a still robust 4.75% in 2007.
• Australian employment growth is forecast to ease from 2.25% in 2006-07 to 1.25% in 2007-08, continuing at that annual growth rate to 2010.
Wages as measured by the Wage Price Index are forecast to grow at 4% pa until 2010.
• CPI growth is forecast to ease from 3% to 2.5%, the middle of the RBA's target band, over the forecast period to 2010. On this scenario, further interest rate rise are unlikely.

Office:
Demand:
• With the unemployment rate at 30 year lows and the participation rate near record highs, the question is often asked "where will the people come from to fill the office buildings?".  The Budget takes some steps to address this, however, the measures are reasonably long-term in their nature.  They include: An increase in the net migration intake; various education iniatives including 'A Higher Education Fund' and 'Realising Our Potential'; health iniatives to keep people at work such as $772 million for improved detection and treatment of chronic and complex conditions.  A number of steps are designed to encourage people to stay in or return to the workforce including increased Child Care Benefits as well as new tax thresholds.
• Small business will receive tax cuts amounting to $540 million over four years, advisory services will increase and compliance costs reduce.  This is expected to be stimulatory for small business which should flow through to the Property and Business Services Industry, a key sector of office demand. 
• A surprise outcome of last year's Budget was the increase in employment in Canberra resulting in a forecast for record levels of office demand in 2007.  The increase in employment is mainly centred around border control issues and this year's Budget extends that trend.  As well as funding for the purchase and maintenance of equipment and contributions to operations in Iraq and Afghanistan, the Budget allows for $2.1 billion for recruitment and retention as well as additional national security initatives.  While the details are not evident, this should be supportive of additional office demand in Canberra and other cities, however, increased spending on climate change, seniors and aged care, the National Heritage Trust as well as the measures already mentioned are likely to require increased administration and a need for further office space.

Investment:
• A one-off doubling of the superannuation co-contribution for eligible contributions made in 2006-07 by low income earners of $1.1 billion could be expected to see around 10% or $110million flow into property  investments.  With total superannuation contributions in 2005-06 totalling $77.1 billion, this represents about a 1.4% increase in total superannuation contributions.  While not huge, it will add to the already significant 'wall of money' searching for property investments and help to keep yields low.

Retail:
• Cuts to income tax in 2007-08 costing $5.3 billion are aimed at low income earners with some suggestions this will provide an additional $15 per week.  There is also a one-off Tax Free Bonus payment to Seniors and Careers amounting to $1.7 billion in 2006-07.  The bonus and additional income are likely to be quickly spent and provide some boost to retail spending (data for March also released yesterday, 8 May, showed the strongest monthly growth since April 2006 at 1.1%).
• Initiatives outlined above to support small business should also be of benefit to retailers.
Industrial:
• Infrastructure spending in road and rail of $22.3 billion over the five years from 2009-10 should provide continuing support to the industrial property sector.