3 May 2016
Described by the ABC as “not the typical pre-election cash splash”, Treasurer Scott Morrison delivered his first budget with the tag line of “practical, targeted and responsible”. Positioned as a budget for an economy in transition, Treasurer Morrison stated that he wanted it to be known for its support of jobs and growth. The other main pillars were fixing “specific” problems in our tax system and continuing to ensure the Government lives within its means.
The key spending elements unsurprisingly focused on the Coalition heartland of small business, innovation and jobs – primarily through its “enterprise tax plan”; to be offset by tackling the current political hot button issues of multinational tax avoidance and equity in superannuation tax concessionality.
The Budget lowers the small business tax rate to 27.5 per cent, whilst increasing the turnover eligibility threshold for small businesses from $2 million to $10 million; this will benefit up to 60,000 businesses and the Government claims that in total, 870,000 businesses, employing 3.4 million Australians, will have their tax rate reduced.
The Government also flags its intention in future years to continue to step up the turnover threshold for access to the lower company tax rate of 27.5 per cent from $10 million to $25 million in 2017-18, to $50 million in 2018-19, reaching $100 million in 2019-20.
In targeting bracket creep, the Government has announced that from 1 July this year, the upper limit for the middle income tax bracket will be increased from $80,000 to $87,000 per year.
The sting in the tail of this revenue equation is the adoption of a new diverted profits tax, as implemented in the United Kingdom, that taxes multinationals on income they have sought to shift offshore at a penalty rate of 40 per cent, higher than the current company tax rate; and the introduction of changes to better target superannuation tax concessions, including the:
- introduction of a superannuation transfer balance cap of $1.6 million on amounts moving into the tax-free retirement phase;
- increase of the concessional contribution rate from 15 per cent to 30 per cent to those earning over $250,000;
- reduction in the annual cap on concessional superannuation contributions to $25,000; and
- establishment of a lifetime non-concessional contributions cap of $500,000.
The Budget therefore seeks to substitute targeted tax changes in place of its previous more ambitious tax reform agenda.
The Budget narrative was somewhat light on the traditional ground of fiscal responsibility, with the modest prediction of the deficit falling to $6 billion or just 0.3 per cent of GDP over the next four years to 2019-20. This has left the Government open to criticism from the Opposition, claiming it has not done enough on the revenue side to tackle the intergenerational challenges Australia’s economy faces.
Of the other main spending initiatives, the Government commits to continue to roll out its $50 billion national infrastructure plan, taking “the next step to realising an integrated inland rail link connecting Brisbane and Melbourne”; establishing a $2 billion Water Infrastructure Loan Facility to catalyse new investment in dams and pipelines across Australia; and to continue with its Asset Recycling Initiative.
It was, however, very light on initiatives in both the health and education portfolios, pointing to its modest fiscal restraint as ensuring the sustainability of current levels of spending. Combined with the restrained spending of $840.3 million over 4 years for its youth jobs centrepiece, such restraint will no doubt pave the way for further election initiatives.
While the Budget outlines a revised modest economic growth forecast of 2.5 per cent for 2015-16 and 2016-17 (up from 2.3 per cent), rising to 3 per cent in 2017-18, it is predicting unemployment will fall to 6.5 per cent in 2016-17 and remain there across the forward estimates.
- The budget predicts an operating deficit of $37.1 billion, or 2.2 per cent of GDP, in 2016-17.
- The deficit is projected to fall to $6 billion in 2019-20, 0.3 per cent of GDP.
- GDP is expected to grow by 2.5 per cent in 2015-16 and 2016-17, reaching 3 per cent in 2017-18.
- Net debt is forecast to peak at 25.8 per cent of GDP in 2017-18.
- Payments as a share of GDP are expected to fall from 25.8 per cent this year to 25.2 per cent in 2019-20.
- Unemployment rate predicted to fall to 6.5 per cent in 2016-17, and remain steady.
- CPI forecast to be 2 per cent in 2016-17, before rising to 2.5 per cent by 2018-19.
- Wage Price Index is expected to be 2.5 per cent in 2016-17, and rise steadily to 3.5 per cent by 2019-20.
TREASURY; FINANCE; PRIME MINISTER & CABINET
- $4 billion over the forward estimates to increase the 32.5 per cent personal income tax threshold from $80,000 to $87,000 from 1 July 2016.
- Reduce the company tax rate for small business entities to 25 per cent over 10 years, at a cost of $2.7 billion over the forward estimates.
- Increase the small business entity turnover threshold from $2 million to $10 million from 1 July 2016, at a cost of $2.2 billion over the forward estimates
- $1.6 billion over four years to introduce a Low Income Superannuation Tax Offset
- $678.9 million over the forward estimates to establish a new Tax Avoidance Taskforce in the ATO.
- $230.0 million for Cyber Security Strategy – which has moved from Defence into PM&C – and includes $194.9 million over four years to implement key recommendations of the Cyber Security Review.
- $3.1 million to progress the competitive tender process for the Australian Securities and Investments Commission (ASIC) Registry.
Major Savings and Revenue
- Increase in tobacco excise to raise $4.7 billion over four years.
- A Tax Integrity Package, to combat multinational tax avoidance and raise an additional $3.9 billion over the next four years
- Lower the point at which high income earners pay additional superannuation contributions tax to $250,000, raising $2.5 billion over the forward estimates.
- $2 billion over the forward estimates through a new $1.6 million transfer balance cap on the total amount of accumulated superannuation
DEFENCE; FOREIGN AFFAIRS & TRADE; IMMIGRATION & BORDER PROTECTION; ATTORNEY-GENERAL
The primary focus of expenditure is the 2016 Defence White Paper commitments, with some modest savings (and expenditure) in the Attorney-General, Immigration and Border Protection and Foreign Affairs and Trade (DFAT) portfolios. These include:
- $29.9 billion over 10 years (2016‑17 to 2025‑26) to deliver plans outlined in the 2016 Defence White Paper (including $50 billion Future Submarine project, $3 billion Offshore Patrol Vessel and $35 billion Future Frigate).
- $1.6 billion to 2025-26 in Defence Industry Policy Statement initiatives, including the Centre for Defence Industry Capability in Adelaide, Next Generation Technologies Fund and a ‘virtual’ Defence Innovation Hub.
- $230.0 million for a Cyber Security Strategy to be administered by the Department of Prime Minister and Cabinet.
- $39.1 million over four years as a result of closing detention facilities currently in use by the Department of Immigration and Border Protection
- $74.5 million over five years within DFAT through reducing administrative processes, changing overseas posting arrangements and removing consular assistance for dual nationals and permanent residents in the countries of which they are citizens
HEALTH; SOCIAL SERVICES; EMPLOYMENT
The Federal Government has increased spending in the Health portfolio by 3.2 per cent to $71.4 billion, while achieving savings through removing items from the Medicare Benefits Schedule (MBS) and continuing the pause on indexation of MBS fees paid to doctors from 2018 to 2020. The Government will also establish a Private Health Sector Reform Committee to advise on private health insurance reforms.
- Up to $2.9 billion over the forward estimates for state and territory public hospitals.
- $1.7 billion over four years from 2016-17 for a Child and Adult Public Dental Scheme, delivered by the states and territories and replacing the existing scheme for children.
- $840.3 million over four years for a Youth Employment Package to support people under 25 to find work.
- $45.2 million over five years from 2015-16 for new and amended PBS listings.
Major Savings and Revenue Measures
- The Government will increase tobacco excise by 12.5 per cent each year from 2017-2020, raising $4.7 billion.
- Savings of $1.2 billion over four years will be achieved through changes to how funding is paid to aged care providers.
- Savings of $242.1 will be achieved over five years from 2015-16 by ceasing the Job Commitment Bonus from December 2016.
- Efficiencies of $66.2 million will be achieved over four years from 2016-17 through measures targeting fraudulent and wasteful Medicare claims.
INFRASTRUCTURE & REGIONAL DEVELOPMENT
Key initiatives in the Infrastructure and Regional Development portfolios include:
- $2.9 billion for the Western Sydney Infrastructure Plan ($524.4 million provided in 2016-17)
- $1.7 billion for the Sydney Metro
- $1.5 billion Victorian infrastructure package to ease congestion (conditional on matched Victorian Government funding)
- $1.2 billion for the Perth Freight Link
- (Up to) $1.1 billion for the Toowoomba Second Range Crossing ($493.4 million provided in 2016-17)
- $594 million for the acquisition of land to build the Melbourne to Brisbane Inland Rail
- $560 million per year from 2019-20 for the continuation of the Roads to Recovery, Bridges Renewal Heavy Vehicle Safety and Productivity and Black Spot programmes.
- $452.6 million for the return of allocation funds in the Asset Recycling Initiative
- $7.8 million from efficiencies in the Infrastructure and Investment Program
COMMUNICATIONS & THE ARTS
Communications and the Arts initiatives focus on maintaining the current level of base funding for the ABC and SBS, and reducing licence fees payable by commercial television and radio broadcasters by 25%.
- $3.1 billion over three years for continued funding of the ABC and $814.2 million for continued funding of the SBS
- $41.4 million additional funding over three years for ABC local news and current affairs services
- 25% reduction in commercial licence fees for commercial television and radio broadcasters (first reduction applicable in the 2015-16 financial year)
- Australian Public Service standard efficiency dividend will be increased by 1.5% in 2017‑18, 1.0% in 2018‑19 and 0.5 % in 2019‑20
INDUSTRY; INNOVATION & SCIENCE
The 2016-17 Budget initiatives for Industry, Innovation and Science supports the Government’s plan to help transition Australia’s economy from “the unprecedented mining investment boom to a stronger, more diverse, new economy”.
- $43.8 million over five years to establish the Northern Australia Infrastructure Facility (NAIF) as a corporate Commonwealth entity to support economic infrastructure in northern Australia
- $100 million to Geoscience Australia for mapping mineral, energy and groundwater potential in northern Australia and South Australia
- (Re-directed) funding of $39.4 million over three years to allow for reprocessing nuclear waste created by Australian Nuclear Science and Technology Organisation (ANSTO) activity.
- $19.4 million over six years from 2015-16 to implement changes to the Country of Origin Labelling (CoOL) framework for food
- $15 million to establish the National Carp Control Plan to eradicate the common freshwater pest, with an initial focus on the Murray Darling Basin
- $27.4 million over two years from the Carbon Capture and Storage Flagships Programme and National Low Emissions Coal Initiative
- $20.2 million over two years from the communications campaign for the National Innovation and Science Agenda package, Entrepreneurs' Programme and Cooperative Research Centres program
ENVIRONMENT; AGRICULTURE & WATER RESOURCES
A number of initiatives identified in the Government’s 2015 Agricultural Competitiveness White Paper have been earmarked for funding in the 2016-17 Budget. The majority of the funding has been targeted toward improving water infrastructure and water security.
- $171.0 million to fund the Reef Trust and Reef 2050 Plan
- $2 billion for the National Water Infrastructure Loan Facility to provide loans to state and territory jurisdictions to support major water infrastructure projects over 10 years
- $17.1 million over four years to further reform agricultural and veterinary chemicals regulation, improve competitiveness of farmers by streamlining access to productivity, and enhance chemicals
- $9.5 million in 2016‑17 for the National Water Infrastructure Development Fund to support additional water infrastructure feasibility studies in northern Australia
- $9.2 million over four years will be saved by means testing the Managing Farm Risk Programme and limiting eligibility to businesses with annual revenue of less than $2.0 million
EDUCATION & TRAINING
The Turnbull Government’s investment in education, training and childcare will increase to more than $41.8 billion in 2016-17, representing a net increase of 6.1 per cent. Key initiatives include:
- $17.6 billion for schools, including $118.2 million (2016 and 2017) additional funding to increase support for students with a disability
- $12.3 billion for higher education, including $12 million over four years for implementation of the National Strategy for International Education; $10.1 million for the Tertiary Education Quality and Standards Agency (TEQSA); $8.1 million to improve the Quality Indicators for Learning and Teaching website
- $8.6 billion for early education and care, including $543 million for the new Inclusion Support Programme; $184.5 million for the Nanny Pilot Programme
- $7 billion on vocational education through funding and student loans
- $3.3 billion for skills
- $133.7 million in 2016-17 from Higher Education Reform (further consultation)
- $247.2 million over five years from the Industry Skills Fund
- $13 million in 2016-17 on efficiencies in the Higher Education Program