2017-2018 Budget Summary

2017-2018 Budget Summary

 

 

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While the Turnbull Government is claiming that this Budget is about fairness, opportunity and security, this Budget actually makes many Australian’s worse off including those that rely on welfare as well as university students. At the same time, the Government plans to cut taxes for big corporations by $50 billion remains on track.
Jobs and Wages
The government continues to attack workers and their unions: eliminating civil servant jobs, endorsing the cut in penalty rates, attacking unions and labour rights, punishing unemployed workers. The new “three strikes” policing program is aimed at compelling the unemployed to work any job, for any wage. So it’s no accident that wage growth has stalled in Australia. Total labour compensation declined in the last GDP data, and average weekly earnings are currently growing at an annual rate of less than 1%. This reflects the deliberate policy actions of the government, as well as chronically poor labour market conditions.
Yet in its budget forecast the government is once again waving a magic wand, and assuming that somehow wages will happily start to grow again. This budget is very optimistic about how many new jobs will be created in coming years: it projects employment growing steadily at 1.5% per year. This doesn’t acknowledge that most new jobs have been part-time or casual positions.
But the budget is even more optimistic about an expected rebound in wage growth. It projects total earnings growing by 3.5% this year, accelerating to 5.25% in the last year of the projections. Wage growth is assumed to accelerate to almost 4% per year. How is that going to happen, given that the government is systematically stripping away workers’ ability to win any pay increases at all? Does this government commit to trying to help workers win 4% annual wage increases?

Numbers and assumptions

• Wage growth of 3.5% accelerating to 5.25%
  • Current wage growth is hovering around 1%
• Employment growing at 1.5% per year
  • Currently more new jobs are part-time rather than full-time.
• Unemployment rate of 5.75 steadily declining to 5.25 over the forward estimates.
  • Unemployment is currently 5.9% and has been above 5.6% since Feb 2013

 

Tax
The main driver behind the government’s projected return to a balanced budget is a very optimistic assumption regarding a major increase in tax revenues. Over the four years of the forward projection, annual revenues are expected to expand $120 billion by 2020-21 (or 30 percent). As a share of GDP, revenues are expected to swell by 2.2 percentage points, reaching the highest share (25.4% of GDP) since the peak of the mining boom (in 2005-06).
There is no clear explanation of where these huge new revenues come from – especially given the ongoing impact of company tax cuts, the elimination of the deficit repair levy for high-income earners, and other tax reductions. There are some modest revenue measures in the budget: including the 0.5% Medicare levy increase (after 2019), the levy on bank liabilities, and a new levy on employers who hire migrant labour. Those policy decisions account for just 6.5% of all new revenues assumed to be received over the coming 4 years.
If revenues stay constant as a share of GDP (instead of magically growing), the budget will be $45 billion short in 2020-21 – and the forecast small surplus will evaporate into a large continuing deficit.
Numbers and assumptions

• Company tax: The second phase of the 10-year plan which will hand $50 billion over 10 years to big business remains on track.
• Multinational tax changes – will negate the use of foreign trusts and partnerships in corporate structures to circumvent the multinational anti-avoidance law. Unquantifiable $ gain.
• Black Economy tax – Extends the taxable payments reporting system to contractors in the courier and cleaning industries to reduce tax avoidance in these industries. Revenue of $318 million over 4 years.
• Budget repair levy – 2% tax on high income earners will be allowed to expire.
• Medicare levy increase – Increases the Medicare levy by half a percentage point for high income earners from 2.0% to 2.5%. Generates $8.2 billion over 4 years.
• Medicare levy low-income thresholds – Threshold for single increased to $21,655 and $36,541 plus $3,356 for each child for families to allow for low-income earners to continue being exempt from the Medicare Levy. Costs $180 million over 4 years.
• Banking levy – Applies to banks with liabilities of over $100 billion. Raises $6.2 billion over the forward estimates.
• $20,000 instant tax write-off for small businesses extended – Costs $650 million

 

Education
Despite the government heralding its measures as increases in funding for both schools and VET, the reality is that the spending announced in the budget still doesn’t match the amounts that the Turnbull and Abbott governments have cut out of these areas over their time in office.
The announcement of the $1.5 billion Skilling Australia Fund for apprenticeships doesn’t return fully the $2 billion that has been cut from VET over this period. Similarly, in primary and secondary schooling, there has been a $22.3 billion cut in the overall funding over the next ten years.

The government is imposing a new “head tax” on employers who hire foreign migrants: $1200 to $1800 per year per head for temporary migrants, and $3000 to $5000 for each permanent migrant (on a one-time basis). The revenues from this levy will be used to fund support for apprenticeships in conjunction with the states, to a total of $1.2 billion over the next 4 years.

Funding skill programs through a tax on migrant labour is not an effective way to rebuild Australia’s battered vocational education system – nor is it an effective way to regulate employers’ over-reliance on temporary foreign migrants (rather than recruiting and training Australian workers). Indeed, the scale of revenues anticipated by the government suggests that incoming migrant labour will continue to constitute a major force in Australia’s labour market.

Effectively regulating and reforming Australia’s migrant labour system – limiting its use to classifications where skilled workers are truly unavailable, and ensuring that migrant workers are entitled to the same protections as all other workers – would in fact undermine the head tax revenues that the government is now counting on.

Numbers and assumptions

• School funding
  • $18.6 billion in recurrent funding for schools for the period to 2027. Actually a $22.3 billion cut over 10 years.
    o Index the base SRS amount by a fixed rate of 3.56 per cent for the 2018, 2019 and 2020 schools years
• Higher education funding
  • Universities
    • Student fees will increase by 7.5 per cent by 2021.
    • Applies an 2.5% ‘efficiency dividend’ to higher education funding for the next two years
    • Lowers the HELP repayment threshold to $42,000 a year – only a little more than minimum wage.
    • Whole package saves $3.8 billion over five years.
  • VET/Apprenticeships
    • Skilling Australia fund – The fund will support a range of projects designed to support growth in trade and non-trade apprenticeships and traineeships in target areas. May include incentives for employers, pre-apprenticeship training, improving retention and completion rates etc. Provides $1.5 billion over four years. Some funding taken from levy applied to employers hiring temporary migrants.
    • A new tax on skilled migration – Skilling Australia Fund levy. Small businesses will be required to pay $1,200 per visa for access to skilled migrants. Businesses over $10m will be required to pay $1,800 per application plus $5,000 for each employee being sponsored for permanent residency. Generates $1.2 billion over the forward estimates.
    • Industry specialist mentoring – $60 million over 2 years to establish a mentoring service for 45,000 apprentices through the Australian Apprentices Support Network program.
    • Industry workforce training program – reducing uncommitted funding for the IWT. Saves $43.3 million.
    • Skills for Education and Employment – Cut of $112.4 million from literacy and numeracy skills program. Savings banked.
  • Childcare
    • One year extension on the National Partnership Agreement on Universal Access to Early Childhood Education to the end of 2018, costing $429.4 million

Infrastructure
The government is boasting of $75 billion in infrastructure funding and financing over the next ten years. It is impossible to know how much of this represents new funds, nor when the funds would be delivered.
At present the government already spends over $18 billion per year on capital (or $200 billion over the next decade): both on new projects, and offsetting the wear and tear of existing assets.
The budget itself does not indicate any enormous expansion in capital spending. In fact, net capital spending is projected to decline in 2017-18 (to just $0.5 billion, the smallest since 2002-03). In essence, in the first year of the budget, the government will spend barely enough to offset depreciation of existing assets.

Net investment grows in later years, but not dramatically. And as a share of GDP, net capital spending by the Commonwealth is projected to average just 0.2% of GDP over the forward projections. Over the last ten years, it has averaged 0.25% of GDP. In other words, under this budget, net Commonwealth capital spending will actually shrink relative to the economy.

It is easy to come up with “big numbers” when talking about infrastructure programs (especially by summing totals over many years), and associated ribbon-cutting ceremonies will attract much attention. But there is no concrete evidence that this budget will accomplish the real and sustained increase in Commonwealth government capital spending that is needed.

Commonwealth capital spending has declined in recent years compared to earlier decades, and there is no evidence that this budget will change that trend.

Numbers and assumptions

• Badgery’s Creek Airport – Establish the Western Sydney Airport Corporation, funded at a cost of $5.3 billion over 10 years.
• National Rail program – Provides $600 million over two years from 2019-20 as part of $10 billion National Rail Program to connect cities and regions.
• Infrastructure Investment Programme – Providing $908.6 million over seven years for projects including the Bruce Highwya in QLD, Wide Bay upgrade Deception Bay Interchange, Walkerston bypass and the Mt Lindsay Highway upgrade.
• Victorian infrastructure -$1 billion for regional and urban infrastructure projects in Victoria. Includes Geelong rail line duplication, North East Rail line upgrade etc. $540 million on identified projects, $461.2 on future projects to be identified.

Energy/Climate
This is an area in which the government has decided that the appearance of taking action is more important than actually taking it.
Headline items include gas reservation and a re-hash of the “Snowy Hydro 2.0” announcements from earlier this year. But beyond the provision of funds for solar thermal in Port Augusta “if necessary” there is little in the way of new public funding or strategic vision for Australia’s energy future.
Numbers and assumptions

• Securing access to our gas resources for domestic use – cost of $86.3 million over four years from 2017-18. This is focussed on increasing gas production and supporting affordable electricity prices for households and industry.
  • $30.4 million over four years from 2017-18 to undertake scientific assessments on three prospective onshore unconventional gas sites to identify the potential impacts on water resources and other environmental assets;
  • $28.7 million over four years from 2017-18 to encourage and accelerate the responsible development of onshore gas for the domestic market
  • $19.6 million over four years from 2017-18 for the Gas Market Reform Group to accelerate reforms agreed by the COAG Energy Council to improve gas market efficiency and transparency.
  • $7.6 million in 2017-18, which includes:
    • pre-feasibility studies and cost-benefit analyses of two potential gas pipelines to South Australia; one from the Northern Territory and one from Western Australia;
    • the Australian Energy Market Operator to undertake a scoping study of potential improvements to the National Gas Services Bulletin Board that would allow users to view real-time data about gas availability;
    • an examination of the constraints on increased gas supply on the east coast of Australia; and
    • a detailed study of current and potential gas production in offshore South Eastern Australia.
  • Funding solar thermal in Port Augusta – ‘make available’ up to $110.0 million for an equity investment, if required, to accelerate and secure delivery of a solar thermal project in Port Augusta, South Australia.
  • Snowy Hydro – announced as part of budget that In addition to the feasibility study for the $2bn Snowy Hydro 2.0, Snowy Hydro’s obligations under its water license would be reaffirmed and we would commit to work together to expedite and streamline environmental and planning processes associated with Snowy 2.0. Commonwealth is open to acquiring a larger share or outright ownership of Snowy Hydro. No actual budget allocation.

Health
The health budget goes part, but not all, of the way towards reversing the damage of the 2014 budget. A 0.5 percent increase in the medicare levy will fund NDIS obligations, and the rebate freeze for bulk billing incentives has ended.

• Medicare
  • Ending Medicare rebate freeze for bulk billing incentives, costing the Government around $1 billion over four years from 2017-18. This includes:
    • bulk-billing incentives for General Practitioners will be indexed from 1 July 2017;
    • standard consultations by General Practitioners and specialist attendances will be indexed from 1 July 2018; and
    • specialist procedures and allied health services will be indexed from 1 July 2019.
  • Establishing the Medicare Guarantee Fund as a special account from 1 July 2017 to guarantee the Government’s commitment to the Medicare Benefits Schedule (MBS) and the Pharmaceutical Benefits Scheme (PBS)
  • Reversing proposed cuts to bulk billing incentives for diagnostic imaging and pathology services (from 2015-16 MYEFO)
  • Dumping the unpopular Pharmaceutical Benefit Scheme $5 co-payment plan from the 2014-15 budget, which proposed that patients pay more for prescription medicines
  • Dumping the 2014-15 Budget measure titled Simplifying Medicare safety net arrangements, which would have made out-of-hospital healthcare more expensive, by making it harder to reach the threshold to access Medicare benefits.
• NDIS:
  • Creation of a NDIS Quality and Safeguards Commission, allocating $209 million from 2017/18 to 2020/21 . Commission will commence operations on 1 January 2018
  • Increase to the Medicare Levy by a further 0.5% to fund the NDIS, bringing in an extra $8.2b over the forward estimates
• Aged care
  • Aged Care workforce strategy – $1.9 million to develop an ‘industry led’ workforce strategy.
  • Commonwealth Home Support Program Funding extension – Confirms the already allocated $5.5 billion over two years from 2018-19 to fund the CHSP and the Regional Assessments Service.

 

Housing

The budget allows people to salary sacrifice into super for their first home deposit, and contains a range of other measures to increase supply.

There has been little meaningful action to bring prices down, with only small changes made to negative gearing and capital gains tax concessions.

• New National Housing Finance and Investment Corporation, established by 1 July next year, will allow community housing to be loaned money at a lower rate. $63.1m over four years.
  • NHFIC will operate an affordable housing bond aggregator. The function will be to issue bonds to the housing market at a reduced cost and longer tenor than banking finance.
  • This will cost $63.1m over four years payable to the Department of Treasury.
• Affordable housing through Managed Investment Trusts – allows investors to pool their funds to invest in at least 80% affordable housing through Managed Investment Trust. Cost unknown over the period.
• First home super saver scheme – allows first home buyers to withdraw future voluntary super contributions for a first home deposit. Allows contributions of $15,000 a year to a maximum of $30,000. Costs $250 million over the forward estimates.
• Empty housing tax – Introduce a charge on foreign owners of property when the residential property is not occupied or genuinely available for 6 months of the each year. Generates $16.3 million over the forward estimates.
• Downsizing super concessions – allows people to make a non-concessional contribution of $300,000 to their super from the proceeds of selling their home. Costs $30 million over the forward estimates.
• A New National Housing and Homelessness Agreement, NHHA, the government will work with States and Territories to reform the National Affordable Housing Agreement from 2018-2019. The NHHA will combine the National Affordable Housing Specific Purpose Payment and the National Partnership Agreement on Homelessness. This will cost an additional $375.3m over three years.

Welfare
The government has announced another effort to police and punish welfare recipients, with a “three strikes” sanctions system.
Never mind that as Centrelink offices can’t even answer the phones. The government will nevertheless establish a whole new system for policing job-seekers and cancelling benefit payments to those not deemed to be sufficiently active in their job search. Ripping benefits away from people who fail drug and alcohol testing is a cruel and intrusive measure. Payments can be cancelled for weeks at a time, with no guarantees of fair process or review.
The government itself acknowledges that this elaborate new system will not produce significant savings – just as other punitive workfare measures have failed to deliver promised savings in the
past. Employment Minister Cash claims $200 million in savings (likely over several years), but even that number is not reliable.

New compliance framework for job seekers – Introduces a system where job seekers are penalised 50% of their fortnightly payment for missing one appointment without a valid excuse, 100% for a second and their payment is cancelled after three missed appointments. Saves $632.0 million over 5 years.

• Government will expand current cashless debit card trials in Ceduna, SA and the East Kimberly, WA. No $ figure given
• Extension of Income Management for NT, and 13 areas of NSW, QLD, SA, VIC and WA $145.5 million over three years, no expenditure allocated from 2019-2020 onwards.
• Winter heating bonus – NXT deal for 3.5 million pension and parenting payment recipients receive $75 for a single and $125 for a couple. Costs $268.9 million over 2 years