Treasurer Scott Morrison has had an unexpected revenue windfall of more than $30 billion during the past six months, attributed to a surge in full-time employment, an improvement in export commodity prices and revived company tax collections.
With uneven popularity and an election not too far off, the government has decided to splash about half of it on tax cuts for "low and middle income earners". There's also an extra $1.6 billion for aged care and retirees.
Modest tax relief is expected to be introduced almost immediately, but voters will have to stick with the government until 2024-25 to get the centrepiece: a flat income tax rate of 32.5% for anyone earning between $40,000 and $200,000. That will cover more than 90% of Australian workers.
BusinessThink held its annual Budget Briefing in the Sydney CBD on the day after the federal Budget was announced, with four UNSW Business School experts giving their verdicts in a panel discussion before a live audience. Here are some of the highlights.
John Piggott, a scientia professor of economics and director of the ARC Centre of Excellence in Population Ageing Research (CEPAR) at UNSW Business School, sees the Budget's initiatives for older Australians as "sensible measures".
Piggott notes "support for home care, support for mental health, particularly among the aged and in aged-care facilities, and then aged-care quality. So this indeed is a baby-boomers' Budget.
"It could have been done earlier, and that would have been better, but there's nothing to object to and there's quite a lot to be pleased about in the direction this is taking."
Piggott concurs with plans to allow additional contributions to superannuation after the age of 65 without satisfying a work test. Also raising the means test threshold on income from exertion.
"I'd like to see it raised a lot more but at least it's been raised."
'If we’re saying this is a baby-boomers’ Budget, what about supporting the health system?'
– FIONA MARTIN
In the area of retirement income, "there is now a move toward trying to structure that better", Piggott says.
"[For example], providing incentives for what we call pooled retirement products – essentially products which provide you with some insurance, some pooling of risk, around idiosyncratic differences in life expectancy.
"People on part-pensions have in the past been penalised by the way in which those kinds of products were treated under means-test rules. That's been simplified a lot and it's been made much more generous. I would like to see it go further, but once again, it's a pretty major step in the right direction."
And increased possibilities for a retirement income stream from an expansion of the pension loan scheme is "a good thing to encourage".
But Piggott sees "a missed opportunity" for regional leadership in the Budget's plan to save $141 million by extending the present freeze on foreign aid for an additional year.
"This is an easy thing to cut but it strikes me as short-sighted," he says.
Fiona Martin, a professor in the school of taxation and business law, finds it "quite incongruous the way we've got this sell as tax cuts to low and middle income earners" when the initial benefit is only $200 a year for those earning up to $37,000, increasing to a maximum of $530 for those earning up to $90,000.
"Is that really going to help people who are struggling?" she asks.
"It's maybe covering a bit of public transport to and from work or something with their children, but there's not a lot going on there."
Martin adds that "we need to look at the long-term planning here because the government is talking about this being a package that goes for seven years".
"If you start doing the figures, [it reveals] that if you're on $200,000, then in 2024-25 you'll get a tax break of over $7000. So it's getting up there for the high-income earners. I don't think that's middle Australia," Martin says.
"And I'm very disappointed that there's nothing in the Budget [to support] Newstart, there's nothing about students – any sort of assistance there – and there's nothing about helping the long-term unemployed."
Martin points in particular to the high level of unemployment, and under employment, in the 18 to 25-year-old age bracket.
"And if we're saying this is a baby-boomers' Budget, what about supporting the health system? What about supporting the income of nurses?"
Martin is disturbed by the Budget's three-year funding freeze for the national broadcaster, the ABC, which amounts to a cut of $84 million.
"It is important to keep the independence of that organisation going and you can't do it without spending money," she says.
"My top-line take on the overall Budget is it was kind of unexciting, sort of boring but good," says professor of economics Richard Holden.
"I think in terms of the core economics of it, the personal income tax cuts are a reasonably good idea. [But] they do take seven years to really come into effect so it's pretty far in the future. And as many people have pointed out, that's three elections, and a Senate which has to vote for it, away from occurring."
The Treasurer has imposed a new limit of tax not exceeding 23.9% of GDP. Where does that come from?
"It's artificial. The best most of us can figure out is that it seems to be the average of what the tax take was during the Howard years," Holden says.
"[Choosing] 23.9% is arbitrary, but some overall view of the aggregate tax take is not unreasonable. Morrison's stated reason for it is that it puts some discipline on what you spend money on and it doesn't assume that there's always going to be revenue there to pay for things."
But Holden finds it worrying that an economic upturn during the past six months can lead a government to "making structural decisions on the basis of something that we have no reason to believe is a systematic or secular trend".
'My top-line take on the overall Budget is it was kind of unexciting, sort of boring but good'
– RICHARD HOLDEN
And on the broader question of whether governments should hand out tax cuts at all, or instead use the increased revenue to boost education, health services and infrastructure, Holden offers:
"I think the right way to approach it is to start at the other end and say, 'What services do we want government to pay for?', and have the debate about what those things should be and at what level, and then figure out the least distortionary, lowest-cost way of finding the tax revenue to do that, and think about the structure of taxation, rather than saying, 'Let's figure out how much we can get', and then what to do with it."
Kathrin Bain, a lecturer in the school of taxation and business law, notes there is "nothing really for small business" in the Budget, aside from some changes to the R&D tax incentive and "a lot of those are based on the April 2016 review which saw that there was abuse of it and it wasn't achieving its goals of encouraging R&D spending".
"The main change is making the tax offset based on the intensity of your R&D spending – so, what the percentage of your R&D spend is compared with your total expenditure. In the Budget forward estimates, it says it's going to save $2 billion, so that would suggest there will be less in claims.
"The government seems to want to put across the idea that they haven't forgotten small business but all they've done is extend the [existing] $20,000 asset write-off to June 30, 2019.
"And in the area of cutting red tape, they've reduced the questions you need to answer on your business activity statement. This has already been introduced and they say when it's fully implemented it will save a business about $590 a year. So it really is sort of pocket money change.
"The Budget, to me, just seems like it gives us a lot to talk about but there's very little change in it. And it will be interesting to see what ends up getting through parliament. But I think looking to 2024-25 expecting that we'll have the same government and that these tax cuts will be going ahead as is proposed now – it isn't going to happen."
A video of the full Budget Briefing event is
available on YouTube.