The Budget delivered tonight by Treasurer Scott Morrison has clearly tried to hit the ‘reset button’ from the unpopular and disastrous Budgets of 2014-15 and 2015-16. Gone are the stalled Budget measures from those past Budgets, replaced by concern over the weak wages growth and struggle that everyday families have experienced over recent years, their cost of living pressures, and promising “better days ahead”.
Below are the key individual measures, some of which come straight from Labor’s play book:
Infrastructure:
The Commonwealth has promised $75 billion in infrastructure funding and financing over the next ten years. This sounds impressive, but it won’t be nearly enough to keep up with the 3.5 to 4.0 million population growth expected to be added over this period, nor backfill the infrastructure deficit that has accumulated over the past 15 years as our population has soared.
The Commonwealth will make a $5.3 billion inequity injection into the Western Sydney airport project, which will be delivered by 2026.
The Commonwealth will seek to purchase the Snowy Hydro from the NSW and VIC Governments, with an aim to expand the project (dubbed “Snowy 2.0”).
$844 million will be used to upgrade the Bruce Highway in QLD.
Western Australia will receive $1.6 billion in funding, whereas Victoria will receive $1 billion for regional rail and other infrastructure projects.
The Commonwealth will establish a $10 billion National Rail Program to deliver rail projects that provide better connections for our cities and regions. It will also establish a $472 million regional growth fund to drive growth in the regions.
Importantly, $8.4 billion in equity will be provided to the Australian Rail Track Corporation to help fund the 1,700 kilometre Melbourne to Brisbane inland rail project, which will commence in 2017-18.
Skilled migration:
An annual foreign worker levy of $1,200 to $1,800 per annum will be applied to employers of temporary foreign workers, whereas employers of permanent skilled workers will be levied a one-off $3,000 to $5,000 fee. The measures are expected to raise $1.2 billion over the forward estimates, with the money raised to be put into training initiatives for local workers.
Importantly, however, there will be no cut in the skilled migrant intake from the current insanely high level of 130,000 people per year. This is disappointing and a lost opportunity for the Coalition, given it is this migrant intake that is driving infrastructure bottlenecks in our cities, reducing housing affordability, reducing wages growth, and is totally out of kilter with the oversupply present across the broader economy (a case in point: skilled migration was lower during the mining boom!):
The Coalition could have stopped One Nation in its tracks and wedged Labor simply by halving the permanent migrant intake by targeting so-called ‘skilled’ migrants. They have missed a golden opportunity here.
Health:
There are some important movements in health.
The Medicare Levy will be increased to 2.5% (from 2.0% currently) in 2019. The Coalition will also remove the indexation freeze in the Medical Benefits schedule, and will reverse the bulk billing incentive for diagnostic imaging and pathology services and the increase in the PBS co-payment and related changes.
A “Medicare Guarantee Fund” will also be established to provide certainty for Medicare and the NDIS, increase transparency of costs, with the Medicare Levy paid into this fund [a bit of an accounting fiddle here, rather than a genuine reform].
Education:
There will be $18.6 billion in needs-based funding for schools (dubbed “Gonski 2.0”) over the next 10 years. Accordingly, the Commonwealth will meet 20% of the needs-based funding for each student in the public school system and 80% for students in non-government schools by 2027. Funding for each student across all sectors will also grow at an average of 4.1% per year.
However, university students will be slugged with a 7.5% fee hike, phased in over four years from 2018. Students will also have to pay back their student loans quicker, with the income threshold lowered to $42,000 from $51,957 currently. Repayments will also be indexed to the CPI, rather than the faster-rising average weekly earnings. The Government will also cut $2.8 billion in funding for universities over four years.
Pensioners:
Pensioners impacted by the recent lowering of the assets test will regain access to state and territory concessions that were withdrawn after the last Budget.
Banks:
This is one of the major, unexpected and most positive announcements from this Budget.
The Commonwealth will levy a 6 basis point (0.06%) levy on the liabilities of five biggest banks, although customer’s deposits below $250,000 will be exempt from the liabilities base.
This measure alone is expected to raise $6.2 billion over forward estimates – an excellent outcome.
A permanent team will also be established within the ACCC to police competition in banking sector.
Housing:
As expected, a Mickey Mouse package has been delivered that fails to address the key problems.
Morrison once again blamed the states for failing on supply and will replace the $1.3 billion National Affordable Housing Agreement to compel the States to deliver on housing supply targets and reform their planning systems.
The Commonwealth will establish a $1 billion National Housing Infrastructure Facility, based on a UK model, to fund ‘micro’ city deals that remove infrastructure impediments to developing new homes.
There is also some tinkering at the edges on land supply. The Commonwealth will unlock small amounts of Commonwealth land, such as land for 6,000 new homes within 10 kilometres of Melbourne’s CBD – i.e. enough to cater for about two months of population growth (big deal!).
The CGT discount will also be increased to 60% for providers of affordable housing. And there will also be $375 million for homelessness funding.
On the demand-side, first home buyers will be able to save for a deposit by salary sacrificing into their superannuation account over and above their compulsory superannuation contribution from 1 July. They will be permitted to save a maximum of $15,000 a year and $30,000 in total, with the savings taxed at the concessional superannuation rate. The policy will lower the time taken to save a deposit by an estimated 30%, raise demand and push-up prices (at the margin), and thereby will be inflationary and self-defeating from an affordability perspective.
Over-65s that sell their home will be permitted to make a non-concessional contribution of up to $300,000 into their super fund without affecting the existing age test, work test and the $1.6 million balance test for making non-concessional superannuation contributions.
Negative gearing will be retained, thus “supporting the supply of rental housing and placing downward pressure on rents”, according to Morrison (a myth that has been debunked many times before). However, the integrity of negative gearing will be improved slightly by disallowing deductions for travel expenses and, from Budget night, the Government will also limit plant and equipment depreciation deductions to only those expenses directly incurred by investors.
Foreign buyers will be hit by the removal of the main residence capital gains tax exemption. A $5,000 vacancy tax will also be applied on all future foreign investors that fail to either occupy or lease their property for at least six months each year. Moreover, no more than 50% of development stock will be allowed to be sold to foreign buyers.
Multinational Tax Avoidance:
The Multinational Anti-Avoidance Law will be toughened to extend the rules to structures involving foreign partnerships or trusts and clamping down on aggressive structuring using hybrids. The ATO will also be provided with additional resources to chase and tax the financial crooks.
Welfare crackdown:
The Coalition will cynically expand mutual obligation for unemployed welfare recipients by escalating financial penalties for those that fail to make appointments or take on jobs. The Coalition will also implement a drug testing regime for the unemployed, with those that fail their tests to be placed on cashless debit cards.
Small business owners:
Businesses with turnover up to $10 million will continue to be able to immediately write-off $20,000 in business investments (i.e. a continuation of “Tony’s Tradies”).
Defence:
Defence spending will be increased to 2% of GDP by 2020-21, three years ahead of schedule.
Conclusion:
This reads more like a Labor Budget that the Coalition Budgets of the prior two years, with improved funding for health, education and infrastructure, as well as new taxes on banks and households (via the increased Medicare Levy) – both good policy.
That said, there’s still some Coalition in there, with little meaningful action on housing, university students facing higher fees and earlier repayments, universities receiving less funding, and unemployed welfare recipients facing stricter mutual obligation requirements and potential losses in benefits.
Given the similarities with Labor in many areas, most of the measures should have little difficulty passing the Senate, which will be a nice change from recent years.
