Despite its pre-Budget claims aimed at reducing expectations, the Government has managed to produce two rabbits from its Budget hat – sweeping changes to superannuation and a complex set of reductions in company tax.
Both Are Likely Political Winners
- Cutbacks in superannuation concessions for high income earners are partially offset by a raft of – largely unexpected – concessions aimed at improving superannuation provision for women and others with broken work patterns.
- While they are likely to attract some criticism for measures favoring ‘stay at home wives’ of wealthy primary earners, the Government can argue that the measures support superannuation contributions by medium and low-income earners – providing they are in the workforce.
Company Tax Cuts
- Address the demands of business for such cuts, but are staggered in such a way to help medium-sized businesses first and minimise the impact on the Budget over the four years of the Forward Estimates.
- Medium-sized businesses – between the $2 million turnover threshold for businesses which received a company tax cut to 27.5 per cent in the last Budget, and $10 million – will receive an immediate cut in their company tax to 27.5 per cent.
- The full cut in company tax to 25 per cent for all but the largest companies with a turnover of up to $1 billion, will not take effect until 2026-27.
Economically, the Budget forecasts ‘steady as she goes’
- Little changed from the Mid-Year Economic and Fiscal Outlook (MYEFO) in December, with growth in the 2 ½ to 3 per cent range for the next two years (2 ½ per cent in 2016-17 and 3 per cent in 2017-18), from a forecast 2 1/2 per cent in 2015-16 and 2.2 per cent in 2014-15.
The Budget repair task
- On which Tony Abbott rode to power in 2013 has gone out the window and for the first time the Government, while maintaining that its objective is to achieve a balanced Budget, has dropped any mention of when it expects this to be achieved.
- As has occurred in every Budget update since the 2013 election (Budgets, MYEFO and the Pre-Election Economic and Fiscal Outlook), the size of the forecast deficit has increased in every year of the forecasting period.
- For 2016-17 the Budget forecasts a deficit of $37.1.1 billion, compared to a forecast of $33.7 billion in MYEFO.
- For 2017-18 it forecasts a deficit of $26.1 billion, compared to a forecast of $23.0 billion in MYEFO.
- For 2018-19 it forecasts a deficit of $15.4 billion, compared to a forecast of $14.2 billion in MYEFO.
- In 2019-20 (which appears in the forecasts for the first time because of the four year forecasting cycle), the deficit drops dramatically to $6 billion.
The Budget forecasts a continuation of current economic conditions with continued moderate economic growth over the current and next two financial years, little change in household consumption spending and modest employment growth.