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Coalition 'back in black' with election-pitch budget

Lex Hall with AAP  |  03 Apr 2019Text size  Decrease  Increase  |  
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Back in the black. A copy-cat election pitch. A tax cut worth little more than a coffee a week.

These are just some of the descriptions applied to the Coalition's budget, handed down by federal treasurer Josh Frydenberg last night, as Labor, smelling blood and sensing its election hopes firming, abandoned the usual budget night courtesies by booing at virtually every announcement.

Frydenberg was confident at times, and hesitant at others, as he delivered his first and perhaps last budget for a Coalition that faces an uphill climb to win a third term in office at the federal election, which the Prime Minister Scott Morrison is expected to announce this weekend will be held on May 11.

“I announce that the budget is back in black and Australia is back on track. For the first time in 12 years, our nation is again paying its own way,” the Treasurer said.

Treasurer Josh Frydenberg addresses the media yesterday

'The budget is back in black and Australia is back on track': Josh Frydenberg yesterday

Tax cuts

The centrepiece of the budget, handed down on the same day the RBA again left the cash rate unchanged at 1.5 per cent, was a $158 billion package of tax cuts: in 2024, the 32.5 per cent tax rate will drop to 30 per cent, meaning workers earning from $45,000 to $200,000 will pay 30 cents in every dollar. The budget's wage growth predictions remain high at 3.25 per cent from 2020 onwards, but other forecasts are more conservative. Frydenberg expects employment growth to drop to 1.75 per cent for the next two years, while the unemployment rate is tipped to remain static at 5 per cent.

The $19.5 billion in income tax cuts for the lower paid over the next four years matches Labor's $19.2 billion pledge, which is already locked in. Under Labor's plan, somebody on $50,000 a year would get a $928 tax rebate at year end. Frydenberg increases the Coalition's current offer of $530 to $1080 for this year. That equates to about $4 for a weekday coffee. The tax cuts are funded by an increase in revenue from commodities and Morrison has vowed that a vote for the Coalition will deliver tax refunds of up to $2160 for some families within 13 weeks.

Other key spending was a $100 billion “congestion-busting” infrastructure package, allocated to funding for roads, rail and airports. Infrastructure funding will jump $25 billion to $100 billion over the next 10 years in a bid to connect Australia's job-creating cities with regional population centres. This too is a critical plank of the Coalition’s election bid to win back the so-called Howard battlers. And unemployed people have belatedly been offered one-off payments of at least $75 to help pay for their power bills. People on Newstart were initially excluded from the "energy assistance" budget sweetener for other welfare recipients, which is worth $75 to singles and $125 for couples.

Small business

Small business is another winner. The government will boost its instant asset write-off scheme, from $25,000 to $30,000, and the scheme will now include medium-sized businesses. Up to $525 million will also be spent to create 80,000 apprenticeships.
Then there’s the surplus. Owing to an increase in company tax revenue, the return to surplus will be delivered on time, and for the first time in 12 years, with a $7.1 billion windfall for 2019-20.

Frydenberg’s Labor counterpart, Opposition Treasury spokesman Chris Bowen criticised the budget, accusing the Coalition of copying their ideas, and saying that if the government intended their 2019 budget as a re-election pitch, it was "very underwhelming".
"I wouldn't be relying on this budget to get them over the line," Bowen told radio station 2GB.

Bowen scoffed at the government's claims of a $7.1 billion surplus, saying that while it had been forecast, it had not yet been delivered.

Healthcare and superannuation

There’s a record $80 billion spend on healthcare, a focus of which will be 2000 medicines on the Pharmaceutical Benefits Scheme. This includes the leukemia drug Besponsa, the cost of which will fall from $120,000 to as low as $6.50.

The government’s decision to largely leave superannuation alone in this budget was welcomed by the SMSF sector. The government’s proposed changes to calculating exempt current pension income (ECPI) as well as increasing the age where the work test for making contributions to superannuation applies got a tick from the SMSF Association.

“Changes will be made to allow superannuation fund trustees with interests in both the accumulation and retirement phases during an income year to choose their preferred method of calculating ECPI,” said SMSF Association chief executive John Maroney.

“Currently, the ATO requires them to use both the proportionate method and segregated method for relevant parts of an income year, and this can be unnecessarily complex. This change allows prior industry practice of using the proportionate method and calculating ECPI through an actuarial certificate to begin again.

“The government will also remove the requirement for superannuation funds to obtain an actuarial certificate when calculating ECPI using the proportionate method where all members of the fund are fully in the retirement phase for the entire income year.”

The SMSF Association also welcomed the government’s decision to increase from 1 July 2020 the work test age to 67 to be aligned with the age pension age.

“This will allow voluntary superannuation contributions (both concessional and non-concessional) to be made by those aged 65 and 66 without meeting the work test from 1 July 2020,” Maroney said.

Growth forecasts 'optimistic'

The budget forecast growth of about 2.75 per cent in the 2019/20 financial year, but economists say this is optimistic. They expect it to closer to 2.25 per cent. An NAB group of economists, led by Alan Oster, say consumers continue to struggle with cashflow, which is hampering their discretionary spending. They also cite falling house prices, which will force a corresponding 20 per cent decline in construction activity over the next two years.

BIS Oxford Economics chief economist Sarah Hunter and AMP chief economist Shane Oliver were similarly sceptical, the latter predicting 2.3 per cent economic growth in 2019/20 and for wage growth to undershoot budget forecasts in each of the two years after that.

"The main risk is that the revenue boost is not sustained, and the budget continues to have relatively optimistic assumptions regarding wages growth," Dr Oliver said.

The budget should ease some of the pressure on the RBA to cut the cash rate, although Ms Hunter said there is still "a significant risk" that they will do so to support the economy.

The RBA indicated it was monitoring downside risks when it again held the cash rate at its record low 1.5 per cent on Tuesday, and the market is still pricing in at least one 0.25 percentage point rate cut before the end of 2019.

A SUMMARY OF THE 2019 FEDERAL BUDGET

ECONOMY

  • Budget surplus forecast of $7.1 billion, the first in 12 years
  • Surplus forecast rising to $11 billion In 2020-21 and then $17.8 billion in 2021-22 before dropping to $9.2 billion in 2022-23
  • Goal of eliminating Commonwealth net debt by 2030 or sooner
  • Economic growth as measured by GDP to rise to 2.75 per cent
  • Unemployment rate steady at 5.0 per cent
  • Inflation as measured by CPI to be 2.25 per cent

TAXATION

  • $158 billion of additional tax relief for those earning up to $126,000 a year
  • Up to $1,080 in savings for single income families and up to $2,160 for dual income families
  • Tax rate lowered from 32.5 per cent to 30 per cent from July 2024 for all taxpayers earning between $45,000 and $200,000

SMALL BUSINESS

  • Tax rates cut to 25 per cent by 2021-22
  • Increasing access to finance with a new $2 billion fund
  • Instant asset write-off increased to $30,000 and expanded to businesses with turnover of up to $50 million
  • Additional $60 million for Export Market Development Grants

REGULATION

  • Additional support to the Tax Office to reduce tax cheats
  • Additional support to financial regulators in the wake of the banking royal commission

INFRASTRUCTURE

  • Boosting infrastructure spending to $100 billion over the decade
  • Increasing the Urban Congestion Fund four-fold from $1 billion to $4 billion including a $500 million Commuter Car Park Fund
  • Providing $2 billion for fast-rail between Melbourne and Geelong as well as fast-rail corridors in other areas
  • $2.2 billion for safer roads
  • $1 billion to improve freight routes and access to ports
  • $100 million for regional airports

THE BUSH

  • $6.3 billion in drought support
  • $3.3 billion for those affected by flood
  • New North Queensland Livestock Industry Recovery Agency
  • New $3.9 billion Emergency Response Fund for natural disaster recovery efforts

YOUNG WORKERS

  • $525 million skills package
  • 80,000 new apprenticeships
  • Incentive payments to employers up to $8000 per placement
  • New apprentices to receive a $2000 incentive payment
  • $62 million to boost literacy, numeracy and digital skills
  • Funding to increase participation for women and girls in STEM (science, technology, engineering and maths) industries

RESEARCH

  • $9 billion for science, research and technology, including commercialisation
  • $400 million for genomics research to unlock the secrets of DNA
  • $160 million for research to improve the health of indigenous Australians

HEALTH

  • $80 billion for more MRI machines, more life-changing medicines on the PBS, more funding for mental health, better access to GPs, hospitals and dental services
  • Funding upgrades to regional hospitals, the first being in Townsville
  • Establishing Australia’s first comprehensive children’s cancer centre in Sydney
  • Helping to build a new Brain and Spinal Ward in South Australia
  • $461 million for youth mental health and suicide prevention strategy
  • $500 million for a Royal Commission into the mistreatment of people with disability

AGED

  • $725 million for 10,000 new home care packages
  • One-off Energy Assistance Payment for pensioners of $75 for singles and $125 for couples
  • $84 million to enable carers to leave a loved one in safe hands and take a break

ENVIRONMENT

  • $3.5 billion Climate Solutions Package, $2 billion of which will go to practical emission reduction activities, working with farmers and Indigenous communities
  • $100 million Environment Restoration Fund to deliver large-scale environmental projects

SCHOOLS

  • Committing around $30 million to all schools for upgrades to libraries, classrooms and play equipment
  • New scholarship program for over 1,000 students a year to study in regional Australia
  • $453 million to extend pre-school education, enabling 350,000 children to receive 15 hours of quality early learning per week in the year before school

SECURITY

  • $328 million to fund prevention, response and recovery initiatives
  • $570 million for the Federal Police and ASIO
  • Additional $680 million to support service men and women deployed abroad

 

 

. Lex Hall is content editor with Morningstar Australia

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