It’s often said that a week is a long time in politics. Multiply that by 52 and it may help to explain the seismic shift between last year’s critical and austere Budget and tonight’s Budget, which is being celebrated by the Government as responsible, fair and saddled with incentives to stimulate growth.
With a raft of sweeteners, the Government hopes to reset its credibility rating with the Australian public. The previous language of “crisis of debt and deficit” has gone, even though the deficit is now projected to increase from $29.8 billion to $35.1 billion in the next financial year. As it currently stands, Australia will need to wait until 2018-19 to see the budget return to surplus.
Far from grim, the Treasurer has labelled this the “have a go budget” as the Government sets out an agenda to stimulate spending and show a greater compassion and fairness, particularly to those who feel they who were unfairly targeted last time around.
The big winners tonight are Australia’s small businesses who will receive a very generous package of tax sweeteners totalling $5.5 billion – the biggest spending package announced in the Budget. A tax cut of 1.5 per cent for small business owners, a tax discount of 5 per cent for small, unincorporated businesses and an immediate 100 per cent deduction for new equipment purchases worth up to $20,000 has wowed the small business sector and is expected to positively drive employment and boost economic activity.
Welfare reforms remain front and centre, including the much-discussed child care reforms. The new scheme will see an extra $3.5 billion spent on a means-tested payment system, which will see families earning $65,000 or less receiving 85 per cent of their fees subsidised. For families earning $170,000 or more, that subsidy will reduce to 50 per cent. Don’t go running out to Centrelink tomorrow; full access to the new Child Care Subsidy won’t come into effect until 2017.
The Government has reversed its hard-line and hugely unpopular position on welfare, announcing tonight that young unemployed people will no longer have to wait six months for the dole, instead the wait will be just four weeks for people under 25. While the measure will cost the government $1.8 billion and contradicts last year’s ‘lifters versus leaners’ theme, it will win back vital points for care and compassion – and members of the cross benchers.
To spend a dollar in the health portfolio, it seems you need to find one. That’s the key message from this year’s Budget, which lacked the big bang as a result of the Government holding back the expected savings measures on pharmaceuticals. While the measures may not get the electorate talking like last year’s introduction of a GP co-payment, and gain little media attention, the cuts are harsh and will be felt by those across the health sector. Rationalising and streamlining are once again the words of the moment.
Overall, the Government has gone to extraordinary lengths to make this Budget a vote winner. Government spending will be more than $430 billion in the next year on government services, sitting at 26.3 per cent of GDP. This is believed to be the largest spend by percentage in 20 years.
With this big spend strategy, the Government has ensured the Senate has fewer excuses to block the key measures as it did with last year’s Budget. But the dramatic reversal in the Government’s position still has the potential to leave voters confused and wary still after so many ‘backflips’ on core policies.
Furthermore, it will fuel speculation the Government has prepared this Budget full of sweeteners for a potential early election later this year. If the Senate continues to block the Government’s program – including the higher education reforms, which are already factored into the 2015 Budget papers – the Government might just have the trigger to go to the polls earlier than expected.
Headline Budget Measures
1. Big tax breaks for small businesses – A reduction in the tax rate (30 per cent to 28.5 per cent) for businesses with an annual turnover of under $2 million, 5 per cent tax cut for unincorporated businesses, immediate tax deductions for all assets under $20,000 and the streamlining of registration for all businesses.
2. Tougher test for the aged pension – Reducing the threshold for assets (excluding the family home) to claim a part pension and faster withdrawal once threshold is exceeded ($2.4 billion in savings over five years)
3. Beefing up national security – New funding for intelligence measures, IT capabilities and assistance to the telecommunications industry to implement metadata retention ($1.2 billion over five years).
4. Simplifying child care – Boosting access to child care through the replacing of current benefits with a single benefit based on family income ($3.5 million over five years).
5. Tackling multinational tax avoidance – Introduction of new targeted anti-avoidance law aimed at multinationals that artificially avoid having a taxable presence in Australia (no figures provided).
Deficit – $35.1 billion
GDP – 2.75 per cent Unemployment – 6.5 per cent