Tom Crowley, Chief Editor
The government has spoken ad nauseam in recent weeks about the need to ‘live within our means’, and has insisted time and again that we have a spending problem. This budget proves those slogans are all spin, no substance. The spending measures in this budget exceed the revenue measures by only $1.9bn, by the Treasurer’s own account, but that’s only if you exclude ‘integrity measures’. Include them and they’re basically on par.
But that’s a point about ideology. Whether this budget focuses more on revenue or spending is essentially immaterial; we have a budget problem that requires action on both sides of the equation, and it’s far more important that this budget make up ground in fixing this. Again, though, it doesn’t. A surplus is projected by 2020-21 but, as seems traditional for Federal budgets, this is premised on a large collection of assumptions which, taken in tandem, make the figure seem desperately unrealistic, an assertion which is backed up by the very, very wide margin for error on the figure buried in the back of the budget papers. Don’t believe the government when they say a surplus is on its way; we’re nowhere close.
Nor will we get closer with this kind of form. This budget, much like last year’s, is a total copout. There’s just nothing substantial to note here. Nothing big, no game changers, nothing you could really call reform, or an ‘economic plan’, which Morrison assured us we’d get. Most of the measures in the budget simply skirt around the edges, which the government thinks it can get away with by hiding behind fudged surplus projections.
That’s not to say some of the measures aren’t good. In particular, substantial movement on superannuation tax is welcome; there are concessions for people at the bottom and crackdowns at the top, sound policy which now has bipartisan support. Others, though, most notably multinational tax, fall pretty flat relative to expectations.
But by far the worst thing about this budget, even if it is unsurprising, is its cynical election year tax cuts. The income tax cut benefits the top 20% only, and is soundly uncalled for in the fiscal climate. So too the massive 5% company tax cut and the redefinition of a ‘small’ business to a turnover of $10m. It’s base, cash splashing politics at its worst. There’s your spending problem.
But the budget was also notable for what it lacked. Two things: a higher education policy (the series of unpopular recommendations the government floated in the past month have been shoved to beyond the election, as well as a few more, in an attempt to avoid discussion during the campaign) and infrastructure (the only measures in this budget were existing ones).
Morrison should hope his ‘economic plan’ lasts him past July 2nd. That’s clearly all it was for. If it does, though, there’ll be some more difficult decisions ahead in the government’s second term, made more difficult by another year of nothing.
Priyanka Banerjee, Publications Director
There were no major shocks presented in the Budget papers that had not already been alluded to in some respect over the past couple of months. Indeed in some aspects (read: higher education), the government quite clearly set this up as an election year budget, not engaging with potentially politically toxic issues until after July 2.
The government’s superannuation reforms came as a pleasant surprise in limiting non-concessional contributions, decreasing the income threshold for paying tax on super contributions to those now earning $250,000 and support for lower income earners with the ability to roll over concessional caps and the Low Income Superannuation Tax Offset (LISTO) enabling better long-term savings behaviour for these vulnerable groups.
The dazzling star of the evening was company tax, with the proposed stepped reductions down to 25% by the end of the coming decade to boost non-mining investment. Theoretically, it’s simplistic economics at its best. However, Canada has reduced company tax over the past few years with analysis showing little to no material gain in business investment. It certainly casts a shadow over the government’s optimism on its small business narrative. Australia is also picking up the mantle, following the OECD, in a crackdown on multinational corporate tax avoidance. The diverted profits tax sounds great in theory, but with only $200 million forecast to be raised over two years, one has to wonder how effective a policy it really is, once it is put in practice. Cynical as that may sound, there is something positive to be said about Australia taking some action here, and pushing forth as a global leader on the issue. (Now, if only that could happen with something perhaps a little more pressing… post-COP21 environmental policy, for instance.)
Overall, the Budget is relying on some pretty optimistic growth forecasts (between 4-5% growth in nominal GDP) that is dependent on the government’s tax incentives working out exactly as wished for to provide a not unsubstantial boost to business investment. Not entirely impossible, but given the track record of the past couple of budgets and MYEFOs, let’s just say that I don’t share that same level of optimism.
This Budget could’ve been worse, I suppose, but that’s about as generous a description as I’m willing to give it.
The big ticket item appears to be a convoluted method of delivering a general corporate tax cut. Other countries have tried this method of economic stimulus without phenomenal success, and it appears that the only benefiter globally to this strategy are businesses that now have to pay less in taxes. Or at least, the ones that paid any to begin with will have to pay less. On that note, there are some measures for reducing multinational tax avoidance which are welcome. That said, the diverted profits tax that’s being proposed is projected to have a relatively small revenue stream.
The return to surplus is based on nominal growth forecasts of 4-5% within just a few years. If that falls by even a percentage point, we’re in trouble again. Given that our economy is absurdly exposed to China, and China is at the very best, slowing, those growth forecasts are fairly unbelievable. And that doesn’t even look at any of the other macroeconomic risk factors that we’re exposed to.
Some of changes to super, especially for lower income earners, are worthwhile. The bracket creep measures deliver mediocre savings to voters, of just a few hundred dollars. What’s more, with average earnings below the $80,000 bracket that’s affected by this decision, it won’t benefit lower income earners. It’s essentially a middle-upper income tax cut.
My two biggest disappointments are the apparent lack of clean energy investment policies, and the lack of cohesive reform plan (what a surprise). In a discussion about building a high-tech manufacturing future for Australia, an unclear investment policy for clean energy is moronic. Our economy at the moment has a lot of different transitioning pieces. Mining is declining, as is manufacturing generally. We need a comprehensive reform package that sets out a number of goals for the economy, and then manages those transitioning pieces to achieve those goals. This just isn’t present in this Budget.
I’ll be honest, I missed the big budget unveiling, but I remain unconvinced that I missed much. This really seems like a bit of a make-do budget – no outrageous cuts, no outrageous spending, just a very non-committal shuffling of funding. There are a few tantalising hints of innovation – like this “Youth Jobs PaTH” – but nothing to spook voters, I suppose, on either side of the fence. Little mention of those dirty words “negative gearing” and “tertiary education” either.
The redefining of ‘small business’ is a little zany (a $10m business can really only be called ‘small’ tongue-in-cheek, right, Scott?), but hey, here’s to good old-fashioned economically Liberal policy. A tax cut by any other name smells just as sweet!
But there may yet be hope for something more risqué: the mystery $1.6bn in spending and $2bn in saving. What could they be? I honestly hope Malcolm says that we only get to find out if we reelect him.
This budget is typical of a Turnbull government tied down by poor economic conditions and a bullish group of right wing back benchers. With a the ‘small company’ threshold increased to 10 million and a lowering of the company tax rate, the government is looking to buy over small business owners and the middle class voting group. Essentially, the government is trying play Robin Hood facade by making minor improvements in policies that most affect the middle class and cracking down on the rich by buffing up the ATO to hunt tax evading multinationals and capping the tax free superannuation accounts of the wealthy at $1.6million.
However, I can’t help by feel a little let down by the budget. There seemed to be a lack of emphasis on education and healthcare, as if Turnbull was hiding behind his ‘jobs and growth’ budget and avoiding the other real issues affecting the voting plebiscite. Furthermore, it is disappointing to see an absence of a clear coherent environmental plan. Evidently, Turnbull is still haunted by Abbott’s supporters within the party. The questions is, is the budget any different to an Abbott-Hockey budget in an election year? I guess time will tell.
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