- Personal incomes tax cuts in the last budget before the next federal election.
- A wind back of tax benefits for the research and development scheme.
- No rise in the Medicare levy, and a big aged care support package.
- Big spending infrastructure projects.
Treasurer Scott Morrison Tuesday night launches what is widely expected to be his last before the next federal election.
And he has some better-than-expected cash available to spread around the benefits of an improving budget deficit.
The latest numbers, those for March, show the annual underlying budget deficit running at $14 billion, the lowest total since early 2009.
According to Deloitte Access Economics, overall government revenue will grow by 9.8% in 2017-18 then followed by a further 5.7% gain in 2018-19.
This puts the budget bottom line better than the official forecasts by $7 billion this financial year and another $7.2 billion next year.
That translates into underlying cash deficits of $16.6 billion in 2017-18 and $13.3 billion in 2018-19.
So, with the extra $7 billion in tax revenue and the benefit of spending restraint, Morrison may have up to $10 billion to play with when it comes to personal tax cuts.
In a television interview at the weekend, Morrison confirmed income tax relief for people earning up to $87,000 but cautioned they would not be “mammoth”.
Commentators are expecting Morrison to spread the joy this budget but still promise a return to a balanced budget in 2020.
Goldman Sachs says the government will likely leverage the Budget to help its position for the coming Federal election, scheduled to be held sometime between August this year and May 2019.
“And, for the ﬁrst time in a long time, there is the ﬁscal room to announce a slew of policies likely to buoy sentiment and spending across the electorate,” says Goldman Sachs in a note to clients.
Shane Oliver, Head of Investment Strategy and Chief Economist at AMP Capital, says the upside of the Budget strategy is that consumers will be given a shot in the arm at a time of soft wages growth, falling home prices in Sydney and Melbourne and tightening bank lending standards.
“The downside is that we will still be seeing a record 11 or 12 years of budget deficits with nothing put aside for the next rainy day and there is a risk that the revenue surprise seen lately will prove ephemeral if global growth is threatened and/or employment slows,” he says
Here are the main pieces we know will be in the budget Tuesday night:
Personal income tax cuts. Middle to lower income earners will be getting something right away. Those on the top tax brackets might have to wait a few years. Treasurer Scott Morrison says: “This year’s Budget we will be delivering tax relief to put more money back in the pockets of middle to lower income Australians to deal with their own household and family budget pressures.” The details will be announced Tuesday night. But, as an example, those on $65,000 a year would save $13 a week in tax if the 32.5% tax rate is reduced to 30%.
Aged care support. The budget is expected to introduce around 20,000 new home care places, as well as changes to income tax relief for retirees that will allow them to earn more money without affecting their pension payments.
Medicare Levy. A plan to increase the Medicare levy has been dropped. Treasurer Morrison announced he won’t be increasing increasing the levy to 2.5% from 2% to fund the National Disability Insurance Scheme.
Film tax rebate. There’s $140 million to get Hollywood shooting blockbusters in Australia. Arts Minister Mitch Fifield says the Location Incentive will be delivered over four years from 2019-20 and will bring in $260 million in new foreign investment. He says these productions will create more than 3000 jobs for Australian cast and crew, and support the services of around 6,000 Australian businesses each year.
Cheaper beer? Changes to Australia’s complicated alcohol taxation system targeting the beer and spirits sectors. Treasurer Scott Morrison is planning to make changes to the tax excise charges for craft brewers, but the main change benefits local brewers and distillers, with the 60% refund on excise duty, worth up to $30,000 a year, increasing to $100,000 from July 2019.
Mental health. A $3.9 million investment over three years to ensure the mental health system reflects Australia’s diverse population and that quality and culturally-responsive care is available.
Infrastructure. The biggest infrastructure promise in the budget is $5 billion for a Melbourne CBD to Tullamarine airport rail link. Malcolm Turnbull said: “For over 50 years people have been saying Melbourne’s airport needs a railway.” Other items include $1 billion for the M1 motorway corridor in Queensland, hospitals in Western Australia, remote housing in the Northern Territory and $1.5 billion in road, rail and bridge upgrades for South Australia.
A cut to Research and Development tax breaks. Sweeping changes are reportedly coming to the $3 billion tax credit scheme. KPMG says: “It is clear that the Government intends to rein in the cost of the program.”
Australian Space Agency. Around $50 million, as seed money, to get the agency off the ground. Megan Clark, the former head of the CSIRO, will head the new agency for its first year.
Saving the reef. A $400 million package to save the Great Barrier Reef. The project will aim to improve water quality, target coral-eating crown-of-thorns starfish and implement reef restoration.
Defence Export Strategy. Making Australia an exporter of defence equipment. A $3.8 billion Defence Export Facility to be administered by Australia’s export credit agency EFIC. Last month Defence Industry Minister Christopher Pyne said: “And we put the money aside, $200 billion, to build up the capability of our military over the next 10 years, and now it’s really over to industry to take all the opportunities that we are giving industry.”
The Aged. Australia’s aging population and the impact on the economy. The ABC reports that the budget will include measures to cut the waiting list for older Australians needing aged care in their own homes.
Open banking. Industry body FinTech Australia, representing more than 220 financial services technology companies, expects the government to announce key details about Australia’s open banking framework, allowing consumers more control over their banking data and increase competition among banks for savings and loans.
A cheaper drug to treat Spinal Muscular Atrophy in children. The drug will be added to the Pharmaceutical Benefits Scheme, cutting its the price to $39.50 per script. Families have have to come up with $367,850 a year for the drug. The cost to the budget will be $241 million.
A $40 million package on immunisation. The budget initiative will include a free whooping cough vaccine for pregnant women.
An Illicit Tobacco Taskforce. The budget initiate, which would require importers to pay duty when tobacco enters the country, rather than when it leaves their warehouses, is expected to deliver an extra $3.6 billion over the next four years.
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