Treasurer Scott Morrison today handed down his highly-anticipated first budget. The budget, covering the financial year 2016-17, has been widely billed as the government’s pre-election pitch, coming as it does two months out from the expected poll on July 2nd.
Here’s a summary of what we learned.
The budget balance
The budget papers claim that the government is still on a sustainable path to returning the budget to surplus, but, as predicted, this surplus hasn’t yet appeared in the forward years. The government predicts that the underlying cash balance will shift from a $37.1bn deficit this year to a $6bn deficit by 2019-20, and then will nudge over into a surplus by 2020-21. This figure is more optimistic than expected, and, as is pointed out in the budget papers, contingent on a number of uncertain assumptions.
In particular, that figure assumes:
- Real GDP will grow at 2.5% for the next two years, and 3% after that, below trend but higher than predicted by some;
- Wages growth will rebound, ramping up to 3.5% (it is currently 2.3%), due mostly to continued investment in housing;
- Unemployment will fall from 6% to 5.5%;
- Inflation will rebound from its present low (the same low which forced the RBA to cut rates today) and climb back up to 2.5%;
- Nominal GDP will bounce back from its recent sluggish growth levels (the result of falling terms of trade), reaching 5% (currently 1.6%);
- The value of the Australian dollar will remain largely unchanged;
- China will continue to grow at between 6% and 7%;
- The iron ore price will be $55.
Most of these assumptions have been revised negatively since MYEFO, the last set of Treasury estimates released late last year.
Much has been made recently of the fact that government expenditure as a % of GDP has risen under the Coalition government to the same level as at the height of the GFC, 26.2%. Despite talking about ‘living within its means’, this budget is relatively light on significant expenditure cuts, and that figure will remain between 25.7% and 25.8% over the next four years, still well above its average. In his speech, the Treasurer spoke about payments as a % of GDP declining to 25.2%, but this is different to expenditure, however similar they might sound (the difference is that payments includes Future Fund earnings).
What’s in the budget?
TAX
- A personal income tax cut for those earning above $80,000
- A huge company tax cut, from 30% to 25% over the next ten years. This starts as a small-to-medium enterprise (SME) cut in the short term, but gradually phases up to include all businesses.
- An increase in the threshold of what counts as a SME, from $2 million to $10 million.
- A diverting profits tax (‘Google tax’) to apply to multinationals, to raise $200m over the next four years.
- A new ‘tax avoidance taskforce’ at the ATO designed to increase compliance and collect an additional $679m over four years
- Several changes to superannuation, including new support for low income earners and tighter concessions on high income earners
- A progressive increase to the tobacco excise by 12.5% over each of the next four years, as suggested by Labor but with new costings that indicate $19.5bn fewer to be raised over 10 years.
- Reducing tax concessions for winemaking
SPENDING
- $1.2bn for schools over four years (significantly less than promised under Gonski)
- $2.9bn for hospitals over four years
- Removal of obsolete items from the Medicare Benefits Schedule
- Pausing the indexation of Medicare benefits- $925.3m in savings
- The trial of the ‘health care homes’ program
- Pushing back of the implementation of the Child Care Subsidy until cuts to Family Tax Benefits pass the Senate
- A new pathway to work for youth unemployed, ‘Youth Jobs PaTH’, designed to decrease reliance on Work for the Dole
- A third trial site for cashless debit cards
- Continued funding of the NDIS, with some unexplained reductions in the back years
- A cut for the Public Service in the form of a 2.5% efficiency dividend next year, and 1% dividend for years thereafter
- Reduction of broadcast license fees for television networks
- Continued efficiency dividends for the ABC and the SBS
- The proposed funding boost to ASIC pushed out to 2019-20
- Funding cuts at the Bureau of Meteorology
- Funding increase to the CSIRO, ARC and other research bodies
- Applying the GST to low-value imports
- Expanding tax incentives for early-stage investors and young entrepreneurs
- Half a billion in extra defence funding, including for submarines and frigates
- Extra funding to fund military presence in Iraq and Afghanistan
- Extra funding to counter violent extremism
- Extra money for cyber security
- Extra funding for border protection
- The closure of several onshore detention centres and an expansion to support services for asylum seekers in the community awaiting processing of claims
- An small increase to foreign aid this year, but a decrease in the years following
- Cuts to some arts programs and to sports bodies including ASADA
- Compliance costs for the implementation of the TPP
- Funding for the extended operation of the Royal Commission into Trade Union Governance and Corruption
- Money to infect carps in Australian rivers with herpes to kill them off
What’s not in the budget?
And infrastructure! Despite talking about $50bn being invested in infrastructure, there’s almost nothing new to report. The budget just contains detail on existing projects. Moreover, infrastructure in public transport in the later years of the budget will hardly be paid for by the government at all, at least according to what’s written in this budget. That’s because of the government’s new investment-bank-style ‘seed funding’ approach.
There’s more to come! Keep your eye on this page for updates, and on our Facebook page for posts throughout the night.