BUDGET 2016: A NUDGE IN THE RIGHT DIRECTION

Photo by Sean Gallup/Getty Images

Treasurer Scott Morrison may have just delivered a perfectly pitched budget from a behavioural economics point of view with a set of measures which neatly “nudge” Australians across the broad spectrum of the economy toward the government’s twin goals of jobs and growth.

The government – and specifically this budget – sets up what behavioural economists would call the “choice architecture” within which Australian business and consumers will make decisions.

US academics Richard Thaler and Cass Sunstein explain choice architecture in their 2008 book “Nudge: Improving Decisions About Health, Wealth, and Happiness” as follows:

Decision makers do not make choices in a vacuum. They make them in an environment where many features, noticed and unnoticed, can influence their decisions. The person who creates that environment is, in our terminology, a choice architect.

Scott Morrison in Canberra on budget night. Photo: Getty

In an Australian context, the government and this budget are the choice architects.

Where the 2014 budget appeared to shock and disappoint the community with broken promises and tough measures, the 2016 budget unveiled by Morrison seems to be the very antithesis of its 2014 predecessor.

The 2014 budget saw consumer confidence collapse as a result of these tough measures, this 2016 document looks to deliver stimulus, and confidence in all the right places.

With the exception of negative gearing, the budget seeks, and appears to hit, all the hot buttons currently top of mind for Australian consumers and business.

The budget plans to deliver (on its own figures) :

  • A tax cut for 500,000 Australians who were set to move into the 37.2% tax rate as their wage and salary hit $80,000 this year.
  • A tax rate of 27.5% for around 870,000 companies with turnover of less than $10 million. The government also promises to lower this further to 25% in the next 10 years. The government will also increase access to greater tax concessions for these businesses and CGT concessions for companies with less than $2 million in turnover.

These measures will give confidence to two of the economy’s big engines of growth: households and small business. It may also have a multiplier effect insofar as the very businesses that are get the fillip from the government are also in aggregate responsible for a employing a large proportion of Australia’s workforce.

While these measures deal with business and consumers here and now, other measures, such as clamping down on multinational tax avoidance, and reducing superannuation benefits for Australia’s top earners appear to address elements of unfairness that are embedded in the Australian tax system.

That will in turn encourage consumers and business that the economy and the government is on the right track.

Equally, whereas the 2014 budget looked harsh and sought to take the unemployed off benefits for as long as six months the 2016 budget via its $751.7 million youth jobs program PaTH – Prepare, Trial, Hire – looks to support the unemployed.

It’s not a perfect plan and participants could end up with a very low hourly rate while on the program. But they could equally end up with a job at the end of it.

Either way, it is support for the unemployed not a penalty.

No budget can ever please all people all the time and the opposition is already characterising this document as one that favours the rich.

But treasurer Morrison also looked like a safe pair of hands in a manner Australians may not have seen since Peter Costello was occupying the role.

This budget and the choice architecture that the government is seeking to establish with this document for Australians is likely to drive them toward the economic outcomes the nation needs relative to where Australians were before treasurer Morrison’s announcement.

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