THERE WERE NEVER IN THE WORLD TWO OPINIONS ALIKE

Hockey Offers Good Optics, Optimistic Economics
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Hockey Offers Good Optics, Optimistic Economics

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Hockey Offers Good Optics, Optimistic Economics

The federal government has delivered a confidence-dependent mix of large expenditure items and a continuation of is more structural savings measures across a number of key portfolios. This is all part of a broader attempt to get the Australian economy to grow sustainably at, or above trend, something that it has failed to do since the Global Financial Crisis and also to return to fiscal surplus. According to the Treasurer, his latest budget is simply “the next step in the plan”, and part of the government’s “credible path of fiscal consolidation”. The government has avowed that this budget will boost ‘jobs, growth and opportunity’. Mon Droit is proud to summarise the key features of this budget, straight from the budget lock-up in Parliament House.

DEBT

Net government debt is expected to increase from 19.9 per cent of GDP in 2015-16 up from near 16 per cent at the end of the Rudd-Gillard-Rudd governments. This is then expected to rise to 21.0 per cent in 2016-17 before declining (albeit marginally) to 20.6 per cent of GDP in 2017-18.

DEFICIT

The fiscal deficit is expected to be a $41 billion for this year while this contractionary budget is expected to reign in the deficit by a mere $6 billion for a deficit of $35 billion (2.1 per cent of GDP). Finance minister, Mathias Cormann remained adamant that the government has not changed its timetable for a return to surplus, implying that the government will have a small fiscal surplus in the 2019-20.

The fiscal position of Australia has still been largely at the mercy of iron ore prices, which has caused a write-down of a $20 billion out of the total $52 billion in write-downs which occurred since the last budget handed down by the government. Total mining investment is expected to continue to fall, falling by 30.5 per cent by 2016-17.

KEY INDICATORS

Real GDP is expected to pick-up from 2.5 per cent this financial year to an largely optimistic forecasted growth of 3.25 per cent in 2016-17.
CPI is predicted to bottom-out at 1.75 per cent in 2014-15, then picking up to 2.5 per cent in 2015-16 and beyond.
Real wages are expected to waver dipping to 2.5 per cent in 2014-15 and 2015-16 while picking-up marginally to 2.75 per cent in 2016-17.
Interestingly, even with the government’s focus on increasing participation through various policy incentives in this year’s budget for both employers and prospective employees, the participation rate is expected to remain flat at 64.75 per cent through the forward estimates.
The unemployment rate is expected to peak to 6.5 per cent in 2015-16 before falling ever so slightly to 6.25 per cent in 2016-17.
It is also worth nothing that Australia’s terms of trade will be forecasted assuming a price of $US48 per tonne, a much more conservative estimate than last year’s prediction of $US60.

EDUCATION

It is interesting to note that while education remains the federal government’s fourth largest expenditure item, at $31.9 billion education policy did not feature in the Treasurer’s speech (bar childcare). The Minister for Education, Christopher Pyne said today that the government “remains committed to quality and equity in higher education” and will continue ahead with their plan to deregulate university fees. The government will also be requiring Australian graduates with HECS debts who are living overseas to make the HECS debt repayments that they would be making, had they been living in Australia. This measure is expected to raise an addition $26 million for federal coffers. The focus of this remains firmly focused on childcare policy, and draws attention away from the transfer of funding from the Sustainable Research Excellence programme to the National Collaborative Research Infrastructure Strategy, whose funding is only locked-in for the next financial year.

SMALL BUSINESS

As widely suspected, the real winners of this year’s budget are small businesses who will receive a 1.5 per cent tax cut if their annual turnover is below $2 million. Unincorporated small business will benefit from a 5 per cent tax discount, up to $1000 per year. Small business growth is likely to be boosted further with a tax deduction for each assets costing less than $20,000. Asked whether he was concerned about the ‘success’ of this policy reducing federal revenues by an estimated $1.8 billion, the Treasurer, responded, “I say, ‘fantastic!’” Further reductions in red tape in the small business sector with increase federal revenue by $40 million.

WORKFORCE PARTICIPATION

The federal government will reduce the waiting time for people under 25 to start receiving benefits from six months to a four-week period. On this policy shift, the Treasurer said that, “we listened, and we heard.”

This budget provides over $330 million in targeted spending on new jobs initiatives. Employers who offer job seekers an on-going job can receive a wage subsidy, and for which there will be a $1.2 billion national wage subsidy pool. $212 million will be targeted to disengaged young people who have disengaged from the work and study and are at risk of long-term welfare dependence.

An additional $106 million will provide further support for vulnerable job seekers. The government will also provide $18 million over four years for around 6,000 young job seekers to undertake valuable work experience for up to four weeks while they continue to receive welfare. The job seekers will receive an additional $20.80 per fortnight to undertake this work experience.

WORKING FAMILIES

The other big winners were working families with young children who are set to be the recipients of an additional $3.5 billion over 5 years on childcare assistance. Families earning $65,000 or less will receive a subsidy of 85 per cent of their childcare fees (up to an annual hourly fee cap). Eligibility will be determined by an activity test that closely aligns the hours of subsidised care with the amount of work, training, study or any other recognised activity, such as volunteering.

OTHER MEASURES

Efforts to counter terrorism have literally been redoubled, with an additional $1.2 billion being spent on top of the $1 billion of funding announced last year. This includes $750 million to “extend and expand” Australia’s military operations in the Middle East, $22 million to combat extremist propaganda and $131 million to assist the telecommunications industry to upgrade its systems to implement the Government’s metadata retention policy.

One of the Commonwealth government’s flagship policies has been the asset-recycling program, which has provided $5 billion in additional funds for the states to invest in new infrastructure. Notably, this includes nearly $1.6 billion in supporting the Western Sydney Infrastructure Plan, all over the forward estimates. On the issue of GST distribution, the Treasurer quipped that none of us should, “shed a tear for the states.”

REVENUES

Efficiency and compliance appear to be the mantras adopted by the government across a number of areas with the biggest savings coming from rebalancing the social security asset test threshold and taper rate which brings in a modest $2.5 billion over the forward estimates while the second non-contingent saving (read: Non East-West Link savings, Daniel Andrews) being the strengthening the integrity of welfare payments, which only brings in $1.7 billion.

The government also appears to be chasing down multinational corporations with new legislation prohibiting profit shifting. $265.5 million has been provided to the ATO over the next three years to broaden GST compliance to online businesses. Hockey made it very clear in his budget speech as he has on so many occasions, that “we cannot tax our way to prosperity.”

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