The quick guide to what's in the 2017 federal budget

Photo: Stefan Postles/ Getty Images.

The 2017 federal budget could well be known for what was announced before treasurer Scott Morrison got up to reveal the government’s official plan for the year ahead.

Much has already been revealed or leaked in the weeks leading to the budget, including major changes to school funding, increased fees for university courses, changes to the Pharmaceutical Benefits Scheme and a very strong indication that infrastructure will be a big theme.

It is as if the headlines have already been announced with the budget only to reveal the detail on where the treasurer will put the money coming in from taxes.

Expect detail on how to improve housing affordability.

The treasurer has been preparing the ground, speaking to those 30% of Australians who rent and those who in past generations would have been first home buyers but for steep prices rises.

The key questions are why housing has become so expensive and what can be done to get young people back into the market, especially in Sydney and Melbourne where prices have skyrocketed.

Expect a series of measures, to build housing supply and help first home buyers, but no magic fix.

“One budget will not turn these issues around in isolation, but we can make a start,” says Morrison.

Shane Oliver, chief economist and head of investment strategy at AMP Capital, says the budget is also likely to concentrate another two areas — the budget deficit projections and that ramp up in infrastructure spending.

He says this budget could see a slight improvement in the deficit projections relative to December’s mid-year review, the MYEFO (Mid-Year Economic and Fiscal Outlook).

According to official numbers, the underlying cash balance for the financial year to March was a deficit of $38.907 billion, which is $1.361 billion lower than the MYEFO profile deficit of $40.267 billion.

“While low wages growth is dragging on personal tax collections higher corporate tax collections thanks mainly to higher iron ore and coal prices will likely provide some offset,” he says.

The budget is likely to forecast 2017-18 real GDP growth of 3%, nominal GDP growth of 4% and unemployment of 5.5%.

Oliver expects the 2017-18 deficit projection to come in around $27 billion compared to the $28.7 billion in the mid year projections. In 2018-19, AMP Capital expects the deficit to be around $19 billion compared to $19.7 billion in MYEFO.

But the return to surplus will still be on target in 2020-21, as this chart shows.

“This should preserve Australia’s AAA credit rating at least for now,” says Oliver.

In July last year, Standard and Poor’s placed Australia’s AAA rating on credit watch negative from its previously stable outlook, citing persistent government budget deficits as an issue.

Moody’s, however, has kept Australia’s sovereign credit rating despite the increase in government debt, which the agency believes the nation can afford.

The budget is likely to see announcements on infrastructure spending, including the second Sydney airport and a string of rail and road projects.

These will be mostly backed by debt with the government making a distinction between so called good debt and bad debt.

Morrison sees everyday spending as “bad” debt but borrowing for public infrastructure is “good” because this contributes to productivity and hence economic growth.

Last year’s budget had a $50 billion infrastructure spend to 2020. How much more will be revealed Tuesday night.

Some of the measures expected in the budget:

  • Gonski 2.0. Commonwealth funding for schools will increase by 75%, meaning an additional $18.6 billion over 10 years from 2018.
  • University fees will rise by an average of 8% and graduates will have to start repaying their HECS debts sooner. The income level at which graduates have to start repaying their HECS bill will be cut from $55,000 to earning $42,000 a year, just 20% above the minimum wage of $35,000.
  • Australia’s intelligence agencies to get $75 million in funds previously dedicated to foreign aid.
  • The Australian Federal Police gets an extra $321.4 million to hire up to 300 more specialist officers.
  • A $2.3 billion road and rail infrastructure package for Western Australia. The federal government will kick in $1.6 billion.
  • Funding to be restored to 190 community legal centres across. Attorney General George Brandis has promised extra funding in the budget. The legal centres had been due to lose $30.1 million from July 1.
  • More pressure on the banks. An inquiry by the Productivity Commission into competition in the financial system, including personal deposit accounts and mortgages and services and finance to small and medium businesses.
  • Expect more work to keep welfare payments under control. Christian Porter, the social services minister, says the government is still committed to billions of dollars in welfare savings that do not have the numbers in the Senate to pass parliament. Social secuity and welfare is the governmnet’s biggest spending item at around $158.6 billion.
  • More changes to the Pharmaceutical Benefits Scheme, bringing down the price of some drugs, and encouraging doctors to prescribe generic drugs.
  • Lifting the freeze on Medicare rebates that doctors are paid for bulk-billed visits.
  • Company tax cuts. The government will continue with its long term agenda to cut tax for all companies, large and small. In its 10 year plan, the government wants company tax cut from 30% by 5% for all companies.
  • Tax avoidance. Fresh from a significant win against mining giant Chevron over transfer pricing, the government will continue its assault on companies shifting profits from Australia to countries with lower tax rates.
  • Free-to-air TV licence fees to be cut by about $100 million, helping the commercial TV networking to make ends meet in a weak advertising market. This will come with a ban on gambling advertising on sports coverage.
  • Axing media regulation. The elimination of the “two out of three” rule, meaning one company would be able to own metropolitan newspapers, television and radio stations in any capital city. Also dropping the rule that no-one can have more than 75% of the Australian audience.

Business Insider will have all the details plus live reaction online tomorrow from 7.30pm AEST.

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