2015-16 Federal Budget
12 May 2015
Responsible, measured and fair.
Claiming that ‘we cannot tax our way to prosperity’, Federal Treasurer the Hon. Joe Hockey MP handed down a Budget which was big on economic stimulus – in the form of targeted tax cuts and family support – and extremely light on savings. While ABC economic commentator Alan Kohler claimed ‘it reads like an apology for last year’, and others will say it is a stark U-turn in economic and fiscal policy, it actually reflects what the Government has been saying for months – that to meet our intergenerational challenges we need to increase the productivity of our economy. In this Government’s mind the key component to productivity is growing small business.
The Budget papers show that with the heavy lifting already done on workforce participation, and with low population growth rates, the best option for boosting economic performance is through increased productivity. This is an economic strategy which also protects growth in the short term – protecting the economy from the external challenges it is currently facing. It also shows that with interest rates at historically low levels, now is not the time for Governments to cut stimulus.
The centre piece of the Budget is the $5.5 billion ‘jobs and small business’ package which includes a company tax cut of 1.5 per cent for businesses with a turnover of less than $2 million; immediate tax deductions for assets costing less than $20,000; reductions in red-tape; and providing targeted support for young people who have disengaged from work and study and are at risk of long-term welfare dependency.
The deficit reduction story has been put on hold for a year, with the Budget papers claiming we will not get the Budget deficit down to single digits (-$6.9bn) until 2018-19 – a year later and $4bn higher than predicted in last year’s Budget. Real GDP for 2015-16 is forecast to grow by ¼ per cent to 2 ¾ per cent, up to 3 ¼ per cent in 2016-17. Despite the significant small business package, the unemployment rate is predicted to rise very slightly to 6 ½ per cent for 2015-16 before returning to current levels.
Participation also gets a mention through the previously announced $3.5 billion child care package, including a new – activity and means tested – Child Care Subsidy. This is directly targeted at the ‘165,000 parents who want to work more, but are prevented from doing so by the current costly and complex scheme’. Job seekers also get a boost through a $212 million Youth Transition to Work programme and through $106 million to be spent on ‘intensive support trials for job seekers of all ages, who are facing the most significant barriers to employment’, and there is a new $1.2 billion National Wage Subsidy pool to target long-term unemployment.
The concerns of older Australians have also been recognised with the Government ruling out any ‘new taxes on superannuation’; and the previously announced changes to part pensions, which has enabled the Government to guarantee current benefits received by Pension Concession Card holders.
The big losers in this year’s Budget are foreigners – both companies and individuals. The Government will target the ‘30 large multinational companies that may have diverted profits away from Australia to avoid paying their fair share of tax in Australia’ through the new Multinational Anti-Avoidance Law. It will also mandate that foreign businesses supplying digital products and services are subject to the GST. Foreign companies seeking to invest in Australia will also face much higher foreign investment processing fees, providing the Government with an additional $735 million to spend on enforcement. Hardest hit of all will be young foreign travellers on working holiday visas, who will be the only class of Australian worker who do not get access to the tax free threshold.
While the Opposition has provided in-principle support for the small business package, it is less supportive of some of the other measures. Its strongest criticism has been levelled at the huge change in focus from last year’s Budget. It is too early to tell how many of these measures will fare in the Senate, however this year’s more politically sensitive and optimistic approach will certainly make its passage an easier task.
$5.5 billion Jobs and Small Business Package
- $5 billion Northern Australia Infrastructure Facility
- $4.4 billion Families Package, providing a more accessible child care system
- $3.5 billion over five years on child care assistance; Child Care Subsidy (CCS) to be introduced from 1 July 2017
- $1.2 billion National Wage Subsidy targeting long-term unemployment
$2.4 billion saved over five years by increasing asset test threshold and taper rate for the pension
- $1.7 billion saved in the welfare system by increasing fraud prevention and debt recovery
- Approximately $1 billion saved by halting new mothers’ dual access to work and government Paid Parental Leave schemes
- $295 million over four years by capping generous meal and entertainment expenses at $5000
- Family Tax Benefit scheme expenses to decline by 16.3% from 2015‑16 to 2018‑19, saving $177.3 million
GRACosway has produced a number of short summaries in key portfolio areas. Click on the headings below to download the individual PDF documents: