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TRANSCRIPT
The Prime Minister promised, and the Treasurer has now delivered, a ‘dull’ budget for the year ahead.
In the context of fiscal policy, ‘dull’ means nothing that will overly concern the electorate or undermine consumer or business confidence. There are a few winners and some losers, but little that can be classified as ‘unfair’ or that is likely to get the sort of furious response we saw following the 2014 Budget night announcements.
However, ‘dull’ also means that there is no medium to longer term strategic thinking about how the Budget can eventually be returned to surplus. This will inevitably require political resolve and an understanding by the electorate that there is no silver bullet to solve the problem.
BUDGET 2015–16Building confidence or castles in the air?
PAGE 2 OF 6BUDGET 2015–16 Building confidence or castles in the air?
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Budget Position ($AUD) - LHS % GDP - RHS
Small business a winner; Fiscal adjustment loses out
TheTreasurerhasannouncedaBudgetdeficitof$35 billion,or2.1%ofGDP,for2015–16,downfrom$41.1 billion(2.5%ofGDP)in2014–15.The2015–16Budgetispitchedas‘responsible,measuredandfair’,withaBudgetsurplusprojectedtoreturnby2019–20andtheeconomyshiftinguptotrendgrowthin2016–17.Thekeymeasuresannounced–taxandinvestmentbreaksforsmallbusiness,andchildcareassistance–aredescribedas‘redirectinggovernmentspending’ratherthanunfundednewinitiatives.Inparticular,$7.4billioninsavingsisduetotheabandonmentofthePaidParentalLeaveScheme.
However,realgrowthinexpenditureisforecasttoincreaseoverthefouryearsoftheforwardestimates.Onaveragetheincreaseisamodest1.1%perannum,butthismarksasignificantriseto3.3%by2018-19.Spendingwhenmeasuredasapercentoftheeconomyisprojectedtodriftalittleloweroverthenextfouryears,from25.9%to25.3%.Thisisstillquitehighbyhistoricallevelsand,givenpopulationtrends,isanunsustainabletrendoverthelongertermgiventhecurrentrevenuebase.TheimpactofthecollapseincommoditypriceshassignificantlyerodedGovernmentrevenuesfromthecorporatetaxbaseaswellastaxesfromincomeandsuperannuation.Sincelastyear’sBudget,totalreceiptsareprojectedtobesome$50billionloweroverthefouryearsto2017-18.
YettotalreceiptsasapercentofGDPareanticipatedtorisefrom24.0%ofGDPin2015–16to25.2%in2018–19.ItisunsurprisingthenthattheTreasurerhasnotedthat‘moreworkneedstobedone’tolowerspending,foreshadowingthat–whilemosthaveavoidedmuchpainthistimearound–theBudgetadjustmenttaskhasalongwaytogo.Soonerorlater,somepainis unavoidable.Intheshortterm,however,thefocuswillbeonthenewestinitiativesannouncedbytheGovernmentinthe2015-16Budget.WithchildcarebenefitsnotcomingintoeffectuntilJuly2017,thechiefthrustofnewpoliciesisdirectedatsmallbusinesses.
Underlying Federal Budget position
Mill
ions
1Budget highlights
SMALL BUSINESS MEASURES
From1July2015: § Thetaxrateforcompanieswithannual
turnoveroflessthan$2millionwillbeloweredfrom30%to28.5%atacostof$1.45billion.
§ Forthemajorityofsmallbusinessesthatarenotrunascompanies,anannual5%taxdiscount–upto$1,000–isintroducedatacostof$1.8billion.
Effectiveimmediately: § Smallbusinessescanclaimupto$20,000as
animmediatetaxdeductionforall purchases.Othermeasuresinclude: § Startupcostsfornewbusinessescanbe
immediatelydeducted. § Employeeshareschemeswillnotattracttax
untilthebenefitisrealised § FBTnolongerappliestoanyportable
electronicdeviceusedforwork.
BudgetPosition($AUD)-LHS %GDP-RHS
PAGE 3 OF 6BUDGET 2015–16 Building confidence or castles in the air?
EXPENDITURE
SMALL BUSINESS PACKAGE - $5.5 billionIncludesaccelerated depreciationmeasureswillliftthethresholdforanimmediatetaxdeductionforallindividualassetsbetweenthevalueof$1000and$20,000.Thismeasurewillleadtoacosttorevenueof$1.8 billion.SmallbusinesswillnolongerneedtopayFringe benefits taxonportabledeviceslikelaptopsandtablets.Thegovernmentbelievesthiswillleadtoanunquantifiablecosttothebudget.Alsoincludesa1.5%corporatetaxratecutforbusinesseswithturnoveroflessthan$2millionanda5%taxcutforsmallunincorporatedbusinesses.
FAMILIES PACKAGE - $4.4 billionA $4.4 billionFamiliesPackagewasannouncedwhichwillbemadeupofanewChildCareSubsidymeasurecosting$3.5 billionandan$869 millionChildCareSafetyNettoassistvulnerable,disadvantagedandadditionalneedschildren.Bothmeasuresarescheduledtocommenceon1July2017.
HELPING AUSTRALIANS INTO WORK - $370 millionIncludesnewyouthunemploymentstrategyworth$330million.Fourexistingwagesubsidyprogramswillbeconsolidatedintoasinglenationalwagesubsidypooltoencouragesmallbusinessinhiringjobseekers.Thewaitingforthedoleperiodforunder25yearoldshasbeenreducedfromsixmonthstofourweeks.
NORTHERN AUSTRALIA INFRASTRUCTURE FACILITY - $800 millionGovernmentwillcreateaconcessionalloanfacilitytostimulateprivateinvestmentinNorthernAustralia.Itwillhaveacapacityof$5billion.
Alsoincludes$100milliontoimprovecattlesupply chains.
DROUGHT ASSISTANCE - $270 millionExtensiontocurrentdroughtassistanceprogramsincludingthedrought-specificconcessionalloanschemesandextendedaccesstosocialandmentalservicesinaffectedcommunities.
WELFARE TRANSFORMATION PROGRAM - $60 millionAninitialinvestmentof$60 milliontoupdatethewelfare payment systemwillhelpincreasecapabilitiestodetectanddeterwelfarefraudandensurefairer benefits.
COUNTER-TERRORISM MEASURES - $450 million$450 millionwillbespentonnew intelligence measuresincludingnewITandtelecommunication capabilities.
FOREIGN AID + $1 billionForeignaidwillagainfacesignificantcuts.
WELFARE INTEGRITY MEASURES + $1.5 billionIncludesremovalofdouble-dippingfrombothgovernmentandemployerparental-leavepay.ThegovernmentwillreclaimHECSdebtfromAustralianslivingoverseas.SavingwillalsocomefromincreasingtheDepartmentofHumanServicesfraudpreventionanddebtrecoverycapabilityandimprovingassessmentprocesses.
PAID PARENTAL LEAVE SCHEME + $7.4 billionAsthegovernmentabandonsthescheme,fundsallocatedunderlastyears’forecastshavefreedup.
REVENUE
MULTINATIONAL TAX AVOIDANCE N/AGovernmenttointroducenewlawstotargettaxavoidancebyapproximately30multinationals.Measuresincludeatargetedavoidancelaw,newpricingdocumentationstandardsandstrongerpenaltiesfornon-compliance.Thegovernmenthasnotreleasedestimatesoffuture revenue.
GST EXTENSION + $350 millionGSTappliedtodigitalproductsandservicesfromJuly 2017.
GST COMPLIANCE PROGRAM + $445 millionGovernmentintendstoextendtheprogramtopromoteGSTcomplianceby3years.
2Key measures+ and - represent the change to net budget position
PAGE 4 OF 6BUDGET 2015–16 Building confidence or castles in the air?
55+45 16+84
Thereturntosurplusby2019-20isbasedonanumberofboldassumptions: § Anironorepriceof$48/tonne-whileadmittedlyhardtoforecast,initsownwords
thisassumptionis‘risky’fortheGovernment–forevery$10/tonnefallinthespotprice,revenueswillfallby$2.1billionin2015-16and$4.4billionin2016-17.
§ Theoutlookforrealwagesandemploymentgrowthremainsverymodest,buthouseholdconsumptionisforecasttopickup,implyingafurtherdeclineinhouseholdsavings.
§ Residentialinvestmentwillcontinuetogrowstronglyoverthenexttwoyears. § Non-miningsectorinvestmentwillpickupto4%intheyearaheadand7.5%the
followingyear. § Thetermsoftradewillstarttoincreasefrom2015-16.Iftheseforecastsarenotmet,thenrevenueandexpenditureprojectionswillalsofallshortofexpectationsandthesurpluswillrecedefurtherintothedistance.
TheGovernmentforecastsGDPgrowthof2.75%in2015-16.Keycomponentsare:
FOCUS ON RETAIL
Smallretailbusinesseswillbenefitfromchangestotaxratesandaccelerateddepreciationallowances.TheBudgetisunlikelytohaveasignificantimpactontheretailsectormorebroadly,however.TheBudget’sownforecastsareforamodestpickupinhouseholdconsumption(abroadermeasurethanretailsales,includingforexampleservicessuchashealthandeducation)overthenexttwoyears.Thismodestgrowthcomesfromagentleriseinemploymentbutwithlittleincreaseinrealwages,requiringsomedrawdownof savings.TheBudget’sabilitytorestoreconsumerconfidencewillbethemostcriticalfactordrivingspendingintheshorttomediumterm.
Overthenextthreeyears,theminingsectorwillcontributejust16%tooverallGDPgrowth,comparedwith55%overthepreviousthreeyearperiod.
Previousthree years: Nextthree years:
é 2.75%
ê 8.5%
6.5%
é 6.5%
é 5%
é 2.5% é 2.5%
ê 7%
é 1.5%
Household consumption Theeconomyisexpectedtogetamoderateboostinhouseholdconsumptionin2015-16,pickingupfurtherin2016-17.
Terms of trade Thetermsoftradeisexpectedtodeterioratein2015-16onthebackoffallingcommoditiesprices,beforestabilisingin 2016-17.
Unemployment rate Unemploymentisexpectedtodeterioratefurtherin2015-16,beforeimprovingslightlyin 2016-17.
Dwelling investment Dwellinginvestmentwillremainhealthyin2015-16,beforetaperingoffslightlyin2016-17.
Exports of goods and services Exportswillbeakeycontributortogrowthinboth2015-16and2016-17.
CPI Consumerpricesareanticipatedtoincreasemoderatelyin2015-16.ThisisinlinewithUrbisforecastsforthesame period.
Business investment Ledbyafallinmininginvestmentof25%and30%overthenexttwoyears.Non-mininginvestmentisexpectedtoincreasein2015-16,andfurtherstrengthenin2016-17.
Employment Employmentisexpectedtoimprovemoderatelyin2015-16,pickingupslightlyin2016-17.
Wages Wagegrowthisexpectedtoremainmodestforboth2015-16and2016-17,reflectingthemoderatepaceofeconomicgrowthandmildlabourmarket conditions.
3Macro-economic context
45%84%
55%16%
Mining Non-mining
PAGE 5 OF 6BUDGET 2015–16 Building confidence or castles in the air?
1+2+18+15+4+2+2+1+6+49 35+20+16+7+6+6+10
4The verdict
Where revenue comes from… Where taxpayers’ money is spent…
Fringebenefitstax$5.0 Billion
Superannuationtaxes$9.2 Billion
Otherpurposes$85.7 Billion
Companyandresourcerenttaxes$71.2 Billion
Health$69.4 Billion
Salestaxes$61.6 Billion
Education$31.9 Billion
Fuelsexcise$17.9 Billion
Defence$26.3 Billion
Otherexcise$7.0 Billion
Generalpublicservices$22.2 Billion
Customsduty$9.5 Billion
Allotherfunctions$45.0 Billion
Othertaxes$4.4 Billion
Non-taxrevenue$25.3 Billion
Individualsincometax$194.3 Billion
Socialsecurityandwelfare$154.0 Billion
Impact
TheBudget’sofficialaim,theTreasurerhastoldus,istoencourage‘allAustralianstogetoutthereandhaveago’.Coupledwithhistoricallylowinterestrates,therearerealincentivesforsmallbusinessestobringforwardinvestment.Howeveritisquestionablewhethermuchofthespendingwillgeneratesignificantlyhighergrowthandemployment,especiallyasmuchwilllikelyenduponimporteditems:computers,cars,ortradie’s tools.Moreimportantly,theBudgetneededtore-instilconfidenceinbusinessandconsumers.TherewillundoubtedlybeacollectivesighofreliefacrosstheelectoratethatthisBudgetwasindeedrelatively‘dull’inthattherewerenonastysurprises,andthereiscertainlyenoughtomakeatleastafewsmallbusinessessmile.However,overthecomingweeksincreasingattentionwilllikelybepaidtothelackofprogressinaddressinglongtermBudgetrepair.ThatDamocleanSwordstillhangsaboveus.
Anddoubtlessthesignificantdelayindeliveringthepromisedimprovementinchildcareassistance,togetherwiththeabandonmentofthePPLscheme,willleaveasourtasteinsomeparents’mouths.Critically,thereisnothinginthisBudgetthatislikelytochangetheoutlookfornewinvestmentbylargerbusinesses–thetypeofmajorinvestmentinitiativesthatwillreallyassistinliftinggrowthandemployment,butwhicharecurrentlyonholdinthefaceofsparecapacityandsluggishdemand.Noristheresignificantnewinfrastructureinvestmenttohelpbuildnationalproductivity.
ThetaskofBudgetrepairforthelongtermstillliesaheadofusanddifficultchoiceshavetobemade.Wherecanwemakecutstoexpenditurethatarefairanddonotleavethemostvulnerableinoursocietyexposed?Howcanwecontinuetoinvestineducationandinfrastructure,whicharecriticaltoAustralia’sfuturegrowth.Andhowdowebuildtherevenuebasebacktoasustainablelevelthatreflectstheendoftheminingboom?ThiswasaBudgetcarefullycraftedtoavoidcriticismandrestoreconfidence.Judgingbytheinitialreactions,ithasfallenshortonbothcounts.
PAGE 6 OF 6BUDGET 2015–16 Building confidence or castles in the air?
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