Australia's $376 billion government budget announced last night included a forecast $1.5 billion surplus in 2012-13 that will increase steadily to $7.5 billion over the next four years.

This turnaround in Australia's fiscal position is remarkable given that this financial year the budget deficit is $44 billion and in 2010-11 it was $48 billion, leading to claims by the Opposition it is artificial and reflects accounting tricks rather than economic policy as the budget needs to only be out by 0.4% for the surplus to be nullified.

Driving the $46 billion turnaround, according to the government, is improved targeting of selected welfare and tax concession programs, deferral of some big ticket defence procurement and canceling the 1% corporate tax rate reduction which the government wasn't able to get through the Parliament anyway.

Net government debt is consequentially expected to remain low, peaking in nominal terms at just $145 billion or 8.9% of GDP in 2013-14 before falling to 7.3% by the end of the forward estimates. The face value of government debt securities on issue is, however, forecast to be $235 billion next financial year.

While the budget has been described as containing lots of small measures but having no centerpiece, this ignores the core "Spreading the Benefits of the Boom" package that will see $3 billion in increased family payments, including cash grants for education costs.

Other initiatives are $1 billion to kick-start the National Insurance and Disability Scheme, $500 million each for dental health and regional health care, and $3.7 billion for a restructuring of aged care.

Helping to pay for some of this is a trimming back of superannuation concessions for people earning $300,000 pa although the superannuation industry has said administering these new arrangements will be expensive because funds will have to monitor income levels of individual members and impose differential contribution tax rates.

Currently, all income to a fund be it investment or contributions income is taxed at a flat 15%, which administratively is very simple. Despite this complexity the measure is expected to save only $1 billion over four years, making it quite an expensive tax saving.

The $300,000 threshold is reinforced by other measures such as the government announcing that the superannuation concessional contribution cap will from July this year reduce to $25,000 for everyone regardless of age or their superannuation balance.

This measure reinforces the budget theme of rolling back untargeted concessions to high income earners, a step that seems somewhat redundant as for someone on $300,000 this cap equates to less that 9% of their salary.

In reaction to the policy change, investment strategists are already predicting increased flows back into negatively geared property and share market loans which should boost house prices and further squeeze first home buyers.

With 44% of budget revenues coming from individual taxpayers, the high end superannuation tax changes and cancellation of the corporate tax cut are expected to have minimal electoral impact for an already unpopular government as it's individuals who vote not businesses. Business taxes account for just 22% of revenue and the $300,000 superannuation tax change is estimated to impact only 1% of taxpayers.

A bigger social equity surprise, however, is that the government also scrapped the 50% tax concession on bank deposit interest of up to $1000 albeit the government has countered that other reforms in superannuation mean that around 3.6 million low income Australians will effectively pay no tax on their super guarantee contributions.

Regardless of the politics of the budget, bond markets have already responded positively by lowering yields on Australian government bonds to their lowest level in more than 40 years, a trend that is expected to add to pressure on the Reserve Bank to keep lowering official interest rates.

Bond rates dropping so deeply is also expected to see further falls in the AUD and push up bond prices which should see fixed interest returns staying comfortably in double digit territory thus maintaining pressure on super fund trustees to increase their allocations to the sector notwithstanding bond prices were viewed as excessively high even before the latest yield drop.