A Budget that lands the Coalition in the political centre

A Budget that lands the Coalition in the political centre
May 10, 2017 Parker and Partners

2017-18 Federal Budget

10 May 2017

Budget Highlights

  • Revenue: $444.4 billion in 2017-18.
  •  Expenditure: $464 billion in 2017-18.
  •  Budget position: Deficit of $29.4 billion in 2017-18 with a return to surplus of $7.4                            billion surplus in 2020-21.
  • Inflation: 2.25 per cent in 2017-18.
  •  Real GDP growth: 2.75 per cent in 2017-18.
  •  Unemployment forecast: 5.75 per cent in 2017-18.

The suggestion box in Treasurer Scott Morrison’s office is empty – the staff have read out the ideas, Morrison has listened, and they have been added into this year’s Budget grouped loosely under the headings of ‘fairness, opportunity and security’.
The Treasurer’s second Federal Budget (and Turnbull’s second chance) is a Budget of contrast – extensive investment balanced by a tone of Desperately Seeking Surplus in 2021. The plan is to build things and the prodigal surplus will return. The Government has promised plenty of roads, rails and runways to stimulate industry. A decade-long $75 billion investment in infrastructure is touted as the path to nation building, creating more jobs, and long term prosperity.
The 2017-18 Budget is designed to appeal to as many Australians as possible. In fact the Coalition have adopted so many Labor-esque policies that it will blunt many of the Opposition’s usual lines of attack. It ‘tips the hat’ to the agendas of the Senate crossbenchers smoothing the potential journey through the Senate. The housing affordability package and the Prime Minister’s $90 million energy security plan are all aimed at the ‘working mums and dads’ to make daily life a little more affordable, along with commitments to fund essential services in health and education. While the focus was a fair go for everyone, it seems everyone has to pay their fair share. Medicare, the PBS and the NDIS are ‘guaranteed’ with $10 billion extra spending in health, funded by the new 0.5 per cent increase in the Medicare Levy.

All Australians will face this tax hike potentially just months out from the next Federal Election in 2019.
It was a Budget with a number of notable business-shaped holes in it. Further to the Prime Minister’s earlier announcement on the 457 visa program, this Budget further reverses Howard’s 457 visa olive branch to industry, who will now find themselves footing the bill to employ the ‘world’s best and brightest’ with levies up to $5,000 per foreign employee per year. There was a minor concession to small business (with the one year extension of the $20,000 write off for capital purchases) and a reaffirmation that multinational tax avoidance remains squarely in the ATO’s sights.
What could be seen as cashing in on ‘anti big bank’ sentiment, the Big Four banks (plus Macquarie) are facing increased regulation in the form of the new Banking Executive Accountability Regime which will see hefty fines imposed for executive misconduct. They will also shoulder the lion’s share of Budget repair measures from 1 July 2017 when they’re hit with a six-basis point levy on their liabilities, securing $6.2 billion over the next four years.
The biggest red line item in Government expenditure, social services, has been targeted with the Coalition determined to tighten the reins on welfare spending. The introduction of a demerit point scheme for the unemployed and a new welfare drug testing program sees a tough line approach to welfare recipients.
While the measures the Treasurer has handed down seems to have already ticked boxes for the nation’s credit rating – Moody’s re-confirmed our AAA status within an hour of its release – the electorate will need to be convinced. There’s a sense that they won’t believe it until they see it, which for many of the measures, including the nation building projects of the scale in this Budget may not be for many years. While this Budget puts the Government on the front foot, the question is can they deliver in time to save their electoral scalps?
Finance, Tax & Super
Increased taxes was one surprise from last night’s Budget for a party that once spouted that taxes will always be lower under a Coalition Government. The measures however were transparent, targeted and linked to policy deliverables which should minimise the risk. Every Australian will pay more for the Medicare levy, and first home-owners will get a boost to help them save for their first home, but the emphasis remained firmly with industry with a levy on the big banks, focus on the ‘black economy’ and a recommitment to combatting multinational tax avoidance.
Key Measures:
 Increase the Medicare levy from 2.0 to 2.5 per cent of taxable income from 2019 ($8.2 billion over three years).
 Introduction of a Major Bank Levy ($6.2 billion over four years).
 Broadening multinational anti-avoidance laws to other corporate structures that involve foreign partnerships, trusts and clamping down on aggressive structuring using hybrids (no figures provided).
 Combating the ‘black economy’, including extending the taxable payments reporting system to courier and cleaning industries ($318 million over four years).
 Introduction of the first home super saver scheme that will allow future voluntary contributions to superannuation made by first home buyers afforded the same taxation rate as superannuation ($250 million over four years).
 Restrictions on what investors can depreciate, including plant and equipment depreciation deductions and travel expenses to visit properties (savings of $260 million and $540 million over four years).
 Encouraging Australians over 65 to downsize their house by allowing a one off contribution of up to $300,000 into their superannuation (savings of $30 million over four years).
Health & Aged Care
After three consecutive Budgets of being the mine from which the Coalition Government found savings to keep its surplus within reach, this year’s Budget is a blockbuster for health, with a $10 billion commitment to the portfolio. The cornerstone is agreements with five peak industry bodies covering doctors, pharmacists and the innovative and generic medicines industries which no previous government has achieved. Gone are the shackles of policies past that froze the Medicare rebate, increased the PBS co-payment and altered pathology and diagnostics funding.
The Coalition was clearly out to prove it is in patients’ corner – patients will have to pay less for a trip to the doctor, patients will benefit from bulk-billing incentives for GPs, patients will benefit from three new drug listings and patients will reap the benefits of an opt-out expansion of My Health Record (whether they realise it or not). While the electorate will have a knee-jerk reaction to the Medicare Levy hike, the health measures announced are likely to pass the “pub test” with many likely to agree those most in need have been dealt a helping hand.
Key Measures:
 Establishing the Medicare Guarantee Fund to secure ongoing funding for the Medicare Benefits Schedule and Pharmaceutical Benefits Scheme.
 An agreement with Medicines Australia that reduce the prices of medicines currently on the Pharmaceutical Benefits Scheme with a guarantee that a proportion of savings will be invested into new medicines (a saving of $1.8 billion over four years).
 The phased re-introduction of indexation for a number of items on the Medicare Benefits Schedule, including bulk billing incentives ($1.0 billion over four years).
 Expanding My Health Record to allow individuals to access and control their own medical history ($374.2 million over two years).
 Increasing the two year cap on benefits available to eligible families under the Child Dental Benefits ($163.6 million over five years).
 Three new medicines added to the PBS for heart failure, Idiopathic Pulmonary Fibrosis and schizophrenia ($1.2 billion over five years).
 Community mental health support, including for research, rural telehealth psychological services and suicide prevention ($115 million over five years).
Defence & National Security
As it was for the first Turnbull Budget, Defence and National Security continues to be a safe choice for Government to put their dollars behind. A significant investment in the Australian Federal Police, addressing cyber security and continuing to support Defence’s role in Iraq are all considered sound policy investment. The Government remains committed to the 10-year budget model recommended in the 2016 Defence White Paper; with a $34.6 billion total investment in the Defence portfolio for 2017-18 and a $200 billion commitment for the next decade to include significant investment in defence infrastructure.
Key Measures:
 Boosting national security with additional resourcing for the Australian Federal Police ($321.4 million over four years).
 Implementing the national counter-terrorism framework ($7.2 million over four years).
 Further funding for Australia’s Diplomatic Engagement and Security Arrangements in Iraq ($92.9 million over two years).
 Establishing a Cyber Security Advisory Office to provide assurance and improve cyber security across Government ($10.7 million over four years).
 Expanding existing services, suicide prevention programs and better data collection on mental health for current and former members of the Australian Defence Force ($350 million over four years).
Industry, Innovation & Small Business
Budget night 2017 was a quieter night for the industry and innovation portfolio with a small number of policies designed to continue to assist those businesses and workers impacted by our changing times. Small business will be content with the extension to the immediate deductibility threshold announced in 2015-16 Federal Budget but wanted so much more to ensure ongoing certainty.
Key Measures:
 Establishing an Advanced Manufacturing Fund ($101.5 million over five years).
 Establishing a National Partnership on Regulatory Reform ($300 million over two years).
 Introducing a National Business Simplification Initiative to connect Government digital business services ($9.1 million over one year).
 Extending the immediate deductibility threshold ($20,000) for small businesses by 12 months to 30 June 2018 for businesses with aggregated annual turnover less than $10 million ($650 million over three years).
 Introducing a Skilling Australians Fund levy with business required to make upfront payments for a number of visa classes (savings of $1.2 billion over four years).

Infrastructure & Transport
“Rail by rail, runway by runway and road by road”, declared the Treasurer as he unveiled the Government’s plan to build its way to the land of jobs and growth. And boy is it planning to build with a $75 billion infrastructure spending spree that targets communities across Australia. Thanks to the influence of the Nationals, voters in regional areas are set to receive ‘their fair share’ with nearly half a billion into a Regional Growth Fund. A new Infrastructure and Projects Financing Agency will have its work cut out for them; charged with ensuring tax payer dollars is used wisely. The viability and efficiency of these projects could be the difference between ‘good debt’ turning bad and voter lust turning into frustration.
Key Measures:
 Building the Melbourne to Brisbane Inland Rail Project ($8.4 billion over seven years).
 Creating a National Rail Program ($600 million over two years).
 Establishing the Western Sydney Airport Corporation to build an airport in Badgerys Creek ($5.3 billion over 10 years).
Education & Training
Education stole the headlines in the week prior to handing down the Budget with twin announcements committing the Government to needs-based school funding – dubbed “Gonski 2.0”, while reducing funding for higher education institutions and increasing expectations on how much university students pay and when. While the Government may have robbed Peter to pay Paul, it may have successfully neutralised a core area of strength for Labor with the Opposition left to quibble and differentiate on the amount of funding. The key will be getting both reforms through the Parliament.
Key Measures:
 A commitment to needs based school funding for Australian schools ($18.6 billion over 10 years).
 Reforming the higher education sector including a 2.5 per cent efficiency dividend over two years, increasing student contributions to the Higher Education Loan Program (HELP) and reducing minimum threshold for repayment of HELP debt (savings of $3.8 billion over five years).
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