Budget: Welfare 'could be targets'

TAX revenue will have collapsed by $12 billion by the end of June, according to Treasury forecasts of plummeting company profits.

The shrinking revenue confirms the May 14 Budget will include extensive spending cuts. The Government
promises the cuts will not be so harsh that they will cost jobs and stunt economic growth, which has raised
speculation welfare and tax concessions could be targets for cuts.

So far the Government has indicated that only plans for increased school funding and a national disability
insurance scheme will be protected.

The Treasury forecast means the money collected by the Federal Government will be $12 billion less - across a four-year period - than forecast just seven months ago in the October Budget update.

Treasurer Wayne Swan revealed a week ago a $7.5 billion "sledgehammer" had crashed through anticipated tax revenue.

Prime Minister Julia Gillard today reveals that a further $4.5 billion will be added to the shortfall by the
end of the financial year in just three months.

The Prime Minister's speech to an economic conference in Canberra today is set to promise a plan to respond to "the huge reductions in revenue growth over the next four years" caused in part by the high exchange rate of the Australian dollar which is making exports less competitive.

Outlining the problem, Ms Gillard is expected to say the profits and consequent tax revenue slump was caused by the fact "the prices for what Australian companies sell overseas are lower, imports are cheaper, local competition is fierce".

"Those things add up to business making less profit than planned," her speech says.

"That puts pressures on our stable and resilient economy and it is one reason businesses and workers still
need to work so hard to get ahead.

"When businesses make less profit than planned, it also means Government gets less money in tax than
expected.

"That's the big challenge for the nation in this Budget – and it defines the decisions the Government's
confronting as we put the Budget together."

Ms Gillard will say that while the Budget will be tough it will "make necessary investments in the nation's
future, to ensure that none of our people are left behind".

"We won't, during this time of reduced revenue, fail the future by not making the wise investments that will
make us a stronger and smarter nation," says her prepared speech.

"Better school funding and school improvement will not be jeopardised.

"Our nation cannot afford to leave children behind or to leave our nation's future economy limping behind
the pack, unable to attract the high wage, high skill jobs of the future.

"And we won't fail to make the wise investments that make us a fairer nation.

"DisabilityCare must not be jeopardised.

"A fragmented, unfair, inefficient system hurting 400,000 Australians with disability and their families and
carers – and putting at risk anyone who could acquire a disability – cannot be left in place."

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Santos on track to meet production targets

SANTOS' full year net profit has dropped by nearly a third but the oil and gas producer still expects to meet its production targets in 2013.

Net profit for the full year to December 31 fell to $519 million from $753 million in 2011, when Santos benefited from various asset sales.

Revenue rose 18 per cent to $3.3 billion.

Underlying profit rose 34 per cent to $606 million, driven by higher liquids volumes and gas prices which were partly offset by higher costs linked to new assets.

Santos confirmed it still expects to meet its production forecast for 2013 of 53-57 million barrels of oil equivalent (mmboe) and capital expenditure of about $4 billion.

The company maintained its fully franked final dividend at 15 cents a share.

Santos chief executive David Knox said the company achieved its highest oil production in four years during 2012.

Production increased by 10 per cent, driven by new assets in Western Australia and Vietnam, and strong Cooper oil production.

"We expect a further lift in production in 2013," he said today.

Mr Knox said Santos' LNG projects remained on schedule, with its Papua New Guinea LNG joint venture project on track to start production in 2014 and the GLNG project in Queensland a year later.

Capital costs for both projects were unchanged, he said.

The company's main LNG development project is the $18.5 billion Santos-operated Gladstone LNG project on the Qld central coast, which is part of a suite of coal seam gas-to-LNG projects in the region.

Santos in January said its production costs blew out by up to $50 million in 2012, highlighting the risks to its massive Queensland Gladstone LNG project.

At the time, Santos said production costs were expected to be about $660 million, above previous guidance of $610 million to $640 million.

Meanwhile, Santos expects to pay $45-$65 million towards the federal government's carbon tax for the 12 months from July 1, 2012.

However, it expects to recoup most of the carbon costs through domestic sales agreements and an allocation of free carbon permits to be issued under the jobs and competitiveness program of the legislation for LNG operations.

Santos' results included a $106 million charge linked to impairment losses on its Sangu assets in Bangladesh and its Thevenard Island asset.

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