Budget 2015: Is it what the nation needs?
Our experts analyse the government's latest economic blueprint
Australian Treasurer Joe Hockey delivered the 2015 federal Budget promising to help small businesses and ensure parents can join the workforce. It was sold as fair and responsible, even dull and routine. And yet, there were surprises.
The centrepiece is a $3.5 billion families package to be funded by a cut in existing family tax benefits. There's an extra $30 a week for families – but stay-at-home mums may lose some childcare benefits. Asset-rich pensioners are to lose part-pension benefits.
Small businesses receive a 1.5% tax cut and, for the next two years, the write-off threshold for work-related equipment will rise to $20,000. There will be a tightening of tax laws for multinational companies that shift profits overseas, and also a "Netflix tax", which extends the GST to include digital products from overseas firms.
Hockey says this, his second budget, will defy market expectations and take a credible path back to surplus. However, the budget bottom line will not return to surplus during the next four years.
It's all dependent on a forecast that Australia will sustain an unprecedented three decades of continuous economic growth. The Budget predicts GDP will accelerate from 2.75% in 2015-16, to 3.25% in 2016-17.
BusinessThink hosted UNSW Business School's annual Budget Roundtable in the Sydney CBD to present analysis and comment from four Business School academics – John Piggott, a scientia professor and director of the ARC Centre of Excellence in Population Ageing Research; James Morley, a professor of economics and associate dean; Neil Warren, a professor in the school of taxation and business law; and Dale Boccabella, an associate professor in the school of taxation and business law
The panel answered questions from a live audience, and from Twitter followers listening to an online broadcast.
On the macroeconomics:
"It's what I call the Dr Strangelove Budget, or 'how Joe Hockey had to stop worrying and learn to love the deficit'. In a world where you have an inability to cut back on expenditures and don't want to raise taxes across the board – in fact you may want to cut taxes – it's an algebraic necessity that there would be a deficit.
"Hockey has accepted that and moved on from the budget emergency of 2014 – in fact we even have elements of a Keynesian, Kennedy-era-esque policy of temporary investment tax cuts, targeted at small businesses in particular. That's one of the big-ticket items, about $5.5 billion in temporary tax cuts for small business that are designed to stimulate expenditure now – on durable goods, perhaps hopefully also on investment that will stimulate longer term prosperity.
"What is missing, given the low interest rates Australia is facing now, is more public spending on infrastructure that could lead to long-run growth and productivity. There is a once in a lifetime opportunity of low interest rates – and that opportunity does allow for these big deficits at this point in time, as long as we get back on track in the future.
"Compared with last year's Budget, there is much less fiscal drag than we thought there might be, which gives room for the Reserve Bank of Australia to keep interest rates at these record low levels but not necessarily to cut further."
On the scheme to pay $10,000 to employers for each worker they hire over the age of 50:
"Employment of older workers is certainly a problem but whether this payment will make a difference remains to be seen. It is very important that mature workforce participation is nurtured and continues to increase.
"When people are put out of the labour force in their early 60s, it is incredibly difficult to get back in. If you talk to recruitment agencies they say their clients tell them 'don't send us anyone over 50', sometimes 'don't send us anyone over 40'.
"But the big story is: why don't we provide incentives for firms to retain their older labour force. There is a lot of inadvertent discrimination, such as workers' compensation insurance, which leads to firms finding older workers a more challenging employment prospect. If the $10,000 was used to keep older workers in the workplace it might be a more effective measure."
On the pension assets test:
"I welcome this measure and would rather see a tightening of the taper (the rate at which the pension is withdrawn) among pensioners who are better off, while maintaining a good level of pension payment for those who really need it. The worst single feature of last year's Budget was the move towards price indexation of pensions, which leads to more uncertainty for pensioners."
On the $5.5 billion small business package and deductions up to $20,000:
"We are really dealing with [businesses that have a] turnover of $2 million, not income. Therefore a lot of businesses will not be included. The $20,000 cap [for expenditure they can write off] is going to be quite attractive and not limited by the number of times it can be claimed.
"While it might help bring forward expenditure, is it going to be expenditure that makes a difference, or is it just going to be directed into consumables? Adding the FBT changes to this, it becomes quite attractive. So you can imagine this morning everyone is ducking down to the local shop to buy the mountain bike they 'need' to ride to work, and their iPads etc."
On lowering the small business tax rate from 30% to 28.5%:
"No one should get excited about the 28.5% company tax rate, [and] particularly [not] the $1000 for unincorporated enterprises. The Australian Tax Office will be tearing its hair out working out how this is going to work and, frankly, is it worth the hassle for most businesses? There is an administrative issue there, plus compliance and effectiveness issues."
On changes to paid parental leave:
"What this is about is labour force participation. It is more a labour market policy. We get more taxes by having more people work. One of the ways to do that is to increase labour force participation by the secondary earner. This package is clearly aimed at working mothers, not stay-at-home mums.
"However, until now we have had a really confusing approach to childcare and the way employers give paid parental leave. What this is trying to do is drag them all together into one paid parental leave scheme – with no doubling up – and one clear system of subsidies."
On the crackdown on foreign multinationals diverting profits offshore:
"Foreign multinationals can only be taxed in Australia if they have a presence. This measure is designed to catch those who are planning to avoid a taxable presence here.
"The government has used the general anti-avoidance rule to get these foreign multinationals back into our system – that is essentially what this new measure is directed at.
"The OECD is doing a lot of work on 'taxable presence' and they want every country to adopt it. Australia is going ahead on its own, and is chipping away at the OECD benchmark and that is going to be a problem and could give rise to retaliatory action against Australia.
"Some commentators are saying this measure is mainly directed at US multinationals. Of the 30 multinational groups we have identified, about 25 are based in the US. However, if the US claims we are undermining the double tax treaty we have with them, Australia will have a defence in that it's using the general anti-avoidance rule, which is contained in our treaties, and is not over-ridden by them."