Election 2016: Budget Overview

Justin Liu


July 2nd, 2016

Too often, the ALP and Liberal Party pit themselves against each other, denouncing each others policies and arguing that their own are superior. ESSA’s Justin Liu digs deeper and uncovers some significant similarities in their policies.

The budget can be inscrutable to people without more than a passing interest in politics or economics. Words like ‘deficit’ and ‘surplus’ are tossed about by politicians and the media and much of the general population associate ‘surplus’ with good and deficit with bad.

To give some context, economic conditions in Australia over the past decade have meant that we have accumulated a larger budget deficit over time. The overarching theme of previous elections has therefore been the promise of lowering the deficit and returning to a surplus. This year though, the response has been notably more muted. Slowing growth rates in Australia has meant that implementing large-scale spending cuts is not necessarily best economic practice and cuts to spending on social services are highly unlikely to be popular with the general population (especially in the face of the election)!

While the 2016-17 budget has already been released by the Liberal Government, some of Labor’s proposed policies mirror Liberal policies. For example, both parties plan to lower company tax rates, especially for small businesses. There is also bipartisan support for reducing beneficial tax treatment for concessional superannuation contributions (contributions that are not covered by the superannuation contribution guarantee) and closing multinational corporation taxation loopholes. These policies are designed to increase government revenue, and both parties are utilising these as methods to reduce the budget deficit.

Self-evidently though, there are some key differences between the parties.

Labor has announced that it intends large cuts to the Family Tax Benefit and increases to spending on Medicare, education and infrastructure. Because this policy trajectory involves increased spending, Labor has conceded that they expect the budget deficit to increase under their governance over the next four years. Nevertheless, they still intend to return the budget to surplus at the same time as the Liberal Party (in approximately 2025) as a result of the longer-term structural reforms (such as reversing cuts to Gonski funding and implementing the reforms in full, as well as repositioning Infrastructure Australia to actively engage in developing infrastructure). Admittedly, it is unclear if these reforms will actually result in greater productivity and economic growth in the future. Indeed, the extremely long timeframe along with the general uncertainty surrounding the Australian economy means there is no way of predicting precisely which parties’ policies will prevail.

So what is the key takeaway from all of this?

The budget is far from being in a critical condition and budget repair is not a particularly prominent card being played in the upcoming election. Because both parties intend the same result in the long run, coupled with the similarity between each other’s policies, it is far more likely that the election will be won or lost on other issues.

The views expressed within this article are those of the author and do not represent the views of the ESSA Committee or the Society's sponsors. Use of any content from this article should clearly attribute the work to the author and not to ESSA or its sponsors.

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