The Federal Government is expecting a bigger budget deficit this financial year than originally forecast.

The updated budget papers predict a $41.5 billion deficit, which is almost $1 billion more than the July forecast.

Key points: Budget to return to black in 2012/13 with $3.1b surplusProjected budget surplus in 2012/13 down $400mBudget deficit to increase to $41.5b in 2010/11Unemployment rate to fall to 4.5% by June 2012

Treasurer Wayne Swan’s release of the Mid-Year Economic and Fiscal Outlook (MYEFO) confirmed predictions that a rising Australian dollar would hinder the Government’s bottom line.

But while the 2010-11 budget forecast has blown out, the Government is still on track to return a surplus of $3.1 billion in the 2012-13 financial year.

This compares with the $3.5 billion predicted by Treasury and Finance in the Pre-election Economic and Fiscal Outlook (PEFO) released in July.

The economic update also shows employment conditions will continue to strengthen, with the jobless rate falling to 4.5 per cent by 2012.

A return to surplus by 2012-13 was one of the Labor Government’s key election pledges.

Mr Swan says it is the fastest positive turnaround in the budget in more than 40 years.

And he says the Government is determined not to repeat the mistakes of the past.

“We put our fiscal rules in place in February last year because we understood that as we moved to strengthen the economy we had to formulate the exit strategy for the future,” he said.

Mr Swan says he is optimistic about Australia’s economic future.

“A strong economy is an economy that creates jobs, creates opportunities for people,” he said.

“What they (the figures) represent is hundreds of thousands of more Australians in work.

“To be coming back to surplus in three years, well ahead of any other major advanced economy, is something that we should all be optimistic about.”

Mr Swan also defended changes to the revenues generated from the minerals resources tax.

He says the revised forecast for the tax relates to the change in the exchange rate.

“What we’re dealing with is solely here the exchange rate effect. That’s why tax [revenues] overall are down about $10 billion. It largely reflects lesser company profitability,” he said.

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Australia’s surging dollar will not derail plans to get the national budget back into surplus by 2013 despite its impact on tax revenue, Australian Prime Minister Julia Gillard said on Sunday.

In the last week the Australian dollar <AUD=D4> has strengthened beyond parity with the US dollar, hitting successive record highs over several days. On Friday it hit a 28-year high of $1.0183, the highest since the currency was floated in 1983.

The rise has fuelled concerns about the indirect impact on taxation revenue, particularly from Australia’s key commodities exports, which are mostly priced in U.S. dollars.

In a television interview, Gillard told Channel Nine the budget would be returning to surplus “in 2012-2013 as promised”, referring to Australia’s fiscal year which ends in June. However, she admitted that the “high Australian dollar has had an impact on revenues”.

These would have impacts for the government economic outlook and a new resource rent tax on mining profits, but Gillard said she was determined to seek new savings.

“We are going to keep up the discipline and we will bring the budget back to surplus as promised,” she said.

Treasurer Wayne Swan said the strong Australian dollar would inevitably affect tax revenue.

“The higher dollar means our exporters bring home less income and that flows through to reduced company and resource taxes,” he wrote in a weekly economic note. “Commodity export earnings are particularly affected, because they are contracted in U.S. dollars.”

During the global economic crisis, Australia’s Labor government spent a huge fiscal surplus accumulated under the former conservative government to prop up its economy.

The move helped the country avoid going into recession but also sent the budget into deficit.

The Australian dollar’s recent surge has been driven by a strong economy, strong international demand for Australia’s resources exports, a surprise interest rate hike by the central Reserve Bank of Australia last week and weakness in the U.S. dollar.

Swan has firmly ruled out any direct government intervention to halt its rise, saying the free-market mechanism in place since 1983 has served the country well

To be honest, I’d probably do more shopping from local online retailers if the postage costs were more competitive. Australia Post hasn’t really encouraged shopping online because their costs are so high.

Clearly, I’m not alone. Even more so now, thanks to our rising dollar, more and more Australians are logging on to shop overseas.

However, for many Australians, we don’t just shop online for convenience. More than ever before, we are shopping online, and sending our hard earned dollars overseas, simply because it’s cheaper to get it from America. Or China. Or Europe. Perhaps even Greenland these days!

And guess what? Aussie retailers don’t like it. The Australian retail industry is worth about $292 billion, and it’s estimated that this year Australians will spend about $6 billion online.

They think they’re losing out on a chunk of that income. Well, they are, but not a whole lot.

Quite simply, why should you pay more when you know you can get a product cheaper elsewhere?

I certainly won’t. As every other basic living cost is on the rise, every dollar saved there is another dollar towards something you really want.

In a recent interview, Russell Zimmerman head of the Australian Retailers Association is ‘crying out’ to the government to fix this problem. What problem? He cites job losses, business closing down and all other dramatic scenarios if a stop isn’t put to this madness! When will the pesky consumer learn to pay higher prices for far less options?

In 2005 the government increased the amount you could spend overseas before paying any GST or duties. As of today, if you spend less than $1,000, anything you buy overseas won’t attract a tax charge.

But, for an Australian retailer because of the volume they purchase in, they must pay taxes. It’s simply unavoidable.

Zimmerman, appealing to the government’s need for someone else’s money has reminded the government that it’s missing out on revenue, ‘There’s around $6 billion worth of goods coming in without any form of duty or GST being paid on them… there is around $600 million worth of GST the government is missing out on.’

He’s even suggested that import value be lowered to $400 and then apply duties or GST. The problem isn’t that retailers are under threat of closing down. At the moment, people shopping online is more about eating into retailer profits, which no business likes.

But what’s worrying is that he expects that government to ’save’ the industry by forcing more tax on people. Considering that online shopping accounts for little more than 2% of the entire industry you have to think they must be really desperate for sales.

Instead of trying to get the government to tax you even more and make you pay more for goods, perhaps he should be listening to why consumers are shopping online rather than in stores? That way they may get some of the business back.

Yes, a strong Aussie dollar has encouraged me, and many others to increase internet shopping where possible. Thanks to central bankers fiddling around with things, you can now get more for your money from overseas online stores.

But there’s also the choice factor. There’s a far greater variety available overseas and online. Much more than the shops offer here, and Zimmerman is missing this opportunity to hear what consumers want from their retailers.

Last time I checked, retailers were supposed to serve a purpose, but right now, that purpose isn’t being met. So consumers have voted with their dollars and spent them elsewhere.

Yet, all Zimmerman wants the government to do is to ’save the industry and job losses’. Which really means increasing the taxes you pay.

Now, if items are too expensive in Australia, doesn’t it make more sense to appeal to the government to lower the taxes and duties paid by retailers in order to remain competitive and keep Australian retailers in business?

Of course it does. But he knows that the government is never willingly going to give up a nice revenue stream.

It appears that he knows the only way the government will listen to his pleas is to increase tax on items bought overseas, rather than lower it for retailers so they can try to compete with online retailers.

So before the government listens to the boy crying wolf by gouging you for more tax, and while the Aussie dollar is worth more than the greenback, jump online and get yourself a bargain.

Yet again we have another vested interest who thinks the only way to save an industry is to tax the consumer more, rather than give the consumer what they want.

You can’t save an industry, business or country by applying more taxing because all you end up doing are hurting the very people that support it.

The definition of a Gen Y is someone born between 1980 and 1995. But for most people Gen Y is just a euphemism for layabout, bludger or timewaster. And it helps to explain the alternative reference of ‘Gen ID’ – which means ‘Generation I Deserve’.

Let’s be honest, the name calling is appropriate. I’m sure you’ve talked incessantly about lazy youths or young adults – they won’t buy house, they want to go overseas, they won’t put money in the bank, and on it goes.

And then they quit a perfectly good, well paying job, just because it didn’t ‘engage’ them – whatever that means.

But fear not, the Gen Y offspring aren’t completely useless and ignorant of investing. In fact, you may be quite surprised at how good some of them are at saving…

You see, a survey from bullion company Gold de Royale came through to my inbox recently. The survey looked at their client’s investments habits.

The most interesting detail was the age of the customer buying bullion. A whopping 32% of gold bullion purchases were made by those classed as Gen Y!

But hang on, that can’t be right! This is the generation that thrives on credit, still lives at home on the Bank of Mum & Dad, and believes that a loan for $20k for that ‘must have’ 12 month trip overseas is an asset rather than a debt?

But what about the Gen Xers and Baby Boomers? Only 5% of Gen X’s looked to precious metals for an alternative investment, whereas the Baby Boomers lead the way with 60% of the near retirees wanting bullion as an investment.

Even so, the mainstream media image is still Gen Y is useless with their money.

But the fact is, they’re not. And I’ll explain more in a moment.

Firstly, you need to remember that no other generation has had credit thrown at them, like the Gen Yer’s have.

I bet you spent years saving for you first car, with every single cent – or penny – safely tucked away in a jar or under the bed. You knew that if you wanted wheels, you had to work hard and save for it.

But, when a Gen Yer was finally ready for a car, his or her bank manager had already sent a letter to them congratulating them on their eighteenth birthday and advising them they could get a loan for a car – even if they only had a part time job.

And don’t forget that at any University open days, there are bank leaflets for prospective students on special ‘University Credit Cards’. Sure these cards have a low limit, but before the students are enrolled credit has been thrust into their hands.

So while they have been dubbed ‘Generation Debt’, amazingly ‘only’ 56% of Gen Y’s over 18 have a credit card.

I mentioned before that the Gen Yer’s might be better at investing than you first realised. While you’ve looked at property prices, and possibly wondered how your kids will ever afford their own home, this generation, have looked for alternatives instead.

A hefty chunk of Gen Y have share portfolios. Many older investors have been frightened off the stock market, but Gen Y has used this crisis as a chance to become financially ’savvy’.

A large majority of ‘Generation Me’ have taken this market carnage as a sign they need to learn more about investing. In fact, 65% of Gen Y rate ‘Saving & Investing’ as their main concern. In true Gen Y style, they even have Facebook groups dedicated to sharing tips on how to save more money.

And even though retirement is nearly 40 years away for this lot, many are contributing more of their salary to superannuation.

So if you have the strong desire to kick your Gen Y off the Xbox, Playstation or Wii and move them out of their bedroom while they’re at work, do it. You might just find a large stash of bullion under their bed!

But the good news to come from the market down turn, has shown Gen Y that boom times don’t last forever and that they’ll look for other investment opportunities, instead of bricks & mortar.

Experience has repeatedly taught me to be wary of ‘hot tips’, especially when they concern unproven speculative enterprises. In an efficient market one must be careful not to forget that by the time you have received the tip, so have a thousand others and the expectation will most often already be reflected in the market price. This is especially relevant for those concerned only with short term gains.

However, when one has the patience to hold onto an asset over the medium to long term, and as such can afford to wait for an investment to mature, the efficiency of markets is less of a concern. Moreover, when one looks to become a part owner in a listed company not simply to benefit from short term price fluctuations, but rather to benefit from the growth in earnings and indeed dividends, the potential for attractive gains improves considerably.

To that end I would like to nominate a few companies that appear to hold attractive prospects. The quality of these businesses is, in all cases, evident from their track record. While the future is forever opaque, companies with ‘runs on the board’ certainly represent considerably less risk than those that have yet to demonstrate their potential.

My first pick is Hastie Group (HST), a building, engineering and refrigeration services company that first listed back in 2005. Since inception the company has consistently grown its operating earnings, and furthermore provided reliable and reasonable fully franked dividends. At just 6.3, the PE points to an attractive valuation, and with an expected dividend yield of 6% investors could do far worse.

Next in line is Tassal Group (TGR), a producer and distributor of Atlantic Salmon. With the economy on the mend, and the appetite for high end products on the rise, this company is likely to benefit well from any recovery. Importantly, they are the largest supplier of Atlantic Salmon to both Coles and Woolworth, which represents a real advantage. As with Hastie, Tassal has consistently managed to improve both earnings and dividends and is trading at an attractive valuation (PE and offering a decent yield (over 4%).

In both cases my recommendation would be to ensure you are well diversified and have an investment horizon of at least 2 years. Also, where personal circumstances allow, I would advise investors to reinvest their dividends. Both stocks provide attractive discounts via their reinvestment plans, and importantly a policy of reinvestment will give rise to compounding returns.

In its prospectus, Myer said it planned to sell 479.3 million to 499.5 million shares though the offer at $3.90 to $4.90 a share.

The share sale will raise at least $1.94bn, Myer said, and give it a total market capitalisation of $2.28bn to $2.77bn.

Private equity firms are taking advantage of improved market conditions to exit from their investments globally but the Myer IPO is one of the first such moves in Australia.

TPG and Blum Capital own 84.2 per cent of Myer, with management and the Myer family also holding stakes.

Myer was taken private for $1.4bn in 2006 by a consortium led by TPG.

If the group raises $2.34bn, the float will be the biggest in Australia since Boart Longyear raised $2.3bn through an IPO in 2007.

Credit Suisse, Goldman Sachs JBWere and Macquarie Capital Advisers are joint lead managers of the offer.

Like most markets, Australia’s IPO market has been significantly constrained by a lack of investor appetite amid the global financial crisis.

But a six-month rally in Australian equities and improving confidence in the global economic outlook is expected to prompt further IPOs in coming months.

Private equity-owned outdoor equipment retailer Kathmandu is among those that are expected to look at listing soon.

Myer said it expects to record a net profit of $160 million for the fiscal 2010, off total sales of $3.36bn, up from a net profit of $109m and sales of $3.26bn in fiscal 2009.

The department store operator expects to declare dividends totalling 20.5 cents to 21.5c a share in the 2010 financial year, which represents an annualised forecast yield of 4.3 per cent to 5.3 per cent based on the indicative offer price.

Retail sales have held up well in recent months as Australians continue to shop, with government handouts filling cash registers nationwide.

Consumer confidence is also improving, and although the nation’s unemployment rate is expected to continue to climb, retailers say they are cautiously optimistic about the outlook.

Rival department store chain David Jones said last week it was well positioned for growth amid expectations of a pick-up in conditions for the sector.

If Telstra doesn’t agree to separate its businesses, amended telecommunications laws to be introduced into Parliament later Tuesday will allow Canberra to force a “strong functional separation” on the group.

Communications Minister Stephen Conroy said the new measures “will finally correct the mistakes of the past” that have allowed Telstra to use its ownership of the country’s copper wire network to dominate its rivals, including Singapore Telecommunications Ltd.’s (Z74.SG) Australian arm Optus.

So-called functional separation has proved effective in other jurisdictions – including in the U.K. with BT Group Plc (BT) and with Telecom Corp. of New Zealand Ltd. (TEL.NZ) – in “addressing the underlying incentives for the incumbent to favor its own retail business over its wholesale customers”, Conroy told reporters.

Telstra is currently one of the most highly integrated telecommunications companies in the world across the fixed-line copper, cable and mobile platforms, Conroy said.

Competition watchdog the Australian Competition and Consumer Commission, and some of Telstra’s rivals, had argued that the government should force an even tougher structural split on Telstra – requiring a legal separation of Telstra’s assets and activities into separate corporate entities with entirely separate owners and shareholders – to allow the ambitious new open-access network to compete on equal footing.

Under the new measures unveiled on Tuesday, Telstra would have to conduct its network operations and wholesale functions at arm’s length from the rest of the group, and provide equivalent price and non-price terms to its rivals.

Telstra must submit an enforceable undertaking to the ACCC if it chooses to structurally separate.

And, in a move likely designed to force Telstra to cooperate, Canberra will prevent Telstra from taking up any further wireless spectrum while it still holds its 50% stake in the Foxtel pay television business or owns its hybrid fiber coaxial cable network. Those requirements could be wound back if Telstra agrees to a structural separation.

“It’s so-called voluntary separation but it’s volunteering with a gun to the head,” said BBY analyst Mark McDonnell.

“It is untenable for Telstra to be denied access to spectrum without introducing a major distortion to the competition that exists in the mobile industry.

“Quite clearly, the government is moving in this way because it is afraid of compensation claims were it to seek to legislate directly,” McDonnell said.

Telstra shares fell sharply on the news, and were trading down 4.0%, or 13 cents, at A$3.12, at 0112 GMT.

Telstra said it is looking over the government plans and will update the market as appropriate.

The planned changes come as the government prepares to roll out a new A$43 billion fiber-to-the-home network, which will likely leave large parts of Telstra’s fixed line network redundant.

Conroy told reporters that Canberra is having constructive conversations with Telstra on the planned network. Many analysts expect that Telstra will sell large parts of its existing fixed line network into the new high speed network.

One possible setback to the government plan is the fact that the amended telecommunications legislation will need to clear a potentially hostile upper house Senate.

Australia’s center-left Labor government has a majority in the lower House of Representatives. But it needs the Senate support of either the main conservative Liberal-National coalition, or all seven minor party Senators, to pass any new laws.

The conservative coalition has so far been critical of the government’s approach, particularly its ambitious broadband plan, which will be operated as a public-private partnership, with the government providing up to A$22 billion of the estimated project cost over the next eight years.