2016-17 Federal Budget
3 May 2016
Described by the ABC as “not the typical pre-election cash splash”, Treasurer Scott Morrison delivered his first budget with the tag line of “practical, targeted and responsible”. Positioned as a budget for an economy in transition, Treasurer Morrison stated that he wanted it to be known for its support of jobs and growth. The other main pillars were fixing “specific” problems in our tax system and continuing to ensure the Government lives within its means.
The key spending elements unsurprisingly focused on the Coalition heartland of small business, innovation and jobs – primarily through its “enterprise tax plan”; to be offset by tackling the current political hot button issues of multinational tax avoidance and equity in superannuation tax concessionality.
The Budget lowers the small business tax rate to 27.5 per cent, whilst increasing the turnover eligibility threshold for small businesses from $2 million to $10 million; this will benefit up to 60,000 businesses and the Government claims that in total, 870,000 businesses, employing 3.4 million Australians, will have their tax rate reduced.
The Government also flags its intention in future years to continue to step up the turnover threshold for access to the lower company tax rate of 27.5 per cent from $10 million to $25 million in 2017-18, to $50 million in 2018-19, reaching $100 million in 2019-20.
In targeting bracket creep, the Government has announced that from 1 July this year, the upper limit for the middle income tax bracket will be increased from $80,000 to $87,000 per year.
The sting in the tail of this revenue equation is the adoption of a new diverted profits tax, as implemented in the United Kingdom, that taxes multinationals on income they have sought to shift offshore at a penalty rate of 40 per cent, higher than the current company tax rate; and the introduction of changes to better target superannuation tax concessions, including the:
- introduction of a superannuation transfer balance cap of $1.6 million on amounts moving into the tax-free retirement phase;
- increase of the concessional contribution rate from 15 per cent to 30 per cent to those earning over $250,000;
- reduction in the annual cap on concessional superannuation contributions to $25,000; and
- establishment of a lifetime non-concessional contributions cap of $500,000.
Of the other main spending initiatives, the Government commits to continue to roll out its $50 billion national infrastructure plan, taking “the next step to realising an integrated inland rail link connecting Brisbane and Melbourne”; establishing a $2 billion Water Infrastructure Loan Facility to catalyse new investment in dams and pipelines across Australia; and to continue with its Asset Recycling Initiative.
It was, however, very light on initiatives in both the health and education portfolios, pointing to its modest fiscal restraint as ensuring the sustainability of current levels of spending. Combined with the restrained spending of $840.3 million over 4 years for its youth jobs centrepiece, such restraint will no doubt pave the way for further election initiatives.
While the Budget outlines a revised modest economic growth forecast of 2.5 per cent for 2015-16 and 2016-17 (up from 2.3 per cent), rising to 3 per cent in 2017-18, it is predicting unemployment will fall to 6.5 per cent in 2016-17 and remain there across the forward estimates.
- The budget predicts an operating deficit of $37.1 billion, or 2.2 per cent of GDP, in 2016-17.
- The deficit is projected to fall to $6 billion in 2019-20, 0.3 per cent of GDP.
- GDP is expected to grow by 2.5 per cent in 2015-16 and 2016-17, reaching 3 per cent in 2017-18.
- Net debt is forecast to peak at 25.8 per cent of GDP in 2017-18.
- Payments as a share of GDP are expected to fall from 25.8 per cent this year to 25.2 per cent in 2019-20.
- Unemployment rate predicted to fall to 6.5 per cent in 2016-17, and remain steady.
- CPI forecast to be 2 per cent in 2016-17, before rising to 2.5 per cent by 2018-19.
- Wage Price Index is expected to be 2.5 per cent in 2016-17, and rise steadily to 3.5 per cent by 2019-20.