Federal Budget 2018-19

8 May 2018

Federal Budget 2018-19

“The Government living within its means”

Handing down his third budget, Treasurer Scott Morrison said tonight’s Budget offers responsible, targeted tax relief while maintaining a steady and assured trajectory towards surplus. Commentators have described it as a safe pre-election budget that carefully seeks to avoid causing offence in any quarters.

Seeking to clearly differentiate the Government from what it describes as the ‘high taxing’ Labor Opposition, the Budget reaffirms the Government’s commitment to its signature corporate tax cuts, and introduces phased income tax relief over seven years. Low and middle income earners will see immediate tax relief from 1 July, with the Low Income Tax Offset to almost double to $1,000 a year. In an election night surprise, the Treasurer announced the 37 per cent marginal rate will be abolished from 2024-25, simplifying the tax scale and making bracket creep a thing of the past for “most working Australians through their entire working life”. However, those on the top marginal tax rate will have to wait until at least 2024 before seeing any relief when the top threshold will rise to $200,000. These measures come on top of the Government’s previously announced decision to scrap the 0.5 per cent increase in the Medicare levy.

Confirming the economy has strengthened since the publication of MYEFO in December, Mr Morrison said the budget deficit for this financial year will come in at $18.2 billion, falling to $14.5 billion in 2018-19. Higher economic growth and strong tax receipts, coupled with $41 billion in legislated savings since the last election, will propel the Budget to a slim surplus of $2.2 billion in 2019-20, one year ahead of the last forecasts. The Budget projects a surplus of $11.0 billion in 2020-21 and $16.6 billion in 2021-22.

The Treasurer said the Government will continue to support small business by extending the instant asset write off for purchases of up to $20,000, for businesses with a turnover up to $10 million. The Government will also seek to ‘crack down’ on R&D tax incentives to ensure they are used for their intended purpose, while also closing a ‘tax loophole’ introduced by the Rudd Government which grants foreign companies using stapled structures favourable tax treatment.

In what is likely to be the last budget of this term of government, the Treasurer unveiled a suite of pre-election sweeteners and a $25 billion infrastructure spend, with the Government looking to shore up much needed support ahead of an election expected early next year.

In what appears to be a carefully politically calibrated infrastructure spend, the Government has committed $1 billion for the M1 motorway between Brisbane and the Gold Coast, $970 million for the Coffs Harbour bypass, as well as announcing a $1 billion Urban Congestion Fund, to support state-based project that address pinch points and improve traffic flows in major citiesUrban rail projects continue to feature, with the Budget including $500 million for Perth’s Ellenbrook rail line, $400m for the Port Botany rail duplication project and $390 million for the Sunshine Coast rail network.

Older Australians are the big winners in tonight’s Budget, with the Treasurer announcing a multi-billion dollar aged care package. The package includes funding for an additional 14,000 individual in-home care packages, at a cost of $1.6 billion over 4 years, to allow more elderly Australians to remain in their homes for longer, as well as $146 million to improve access to aged care services in rural, regional and remote Australia. The Pension Loans Scheme will be extended to all older Australians, including full rate pensioners and self-funded retirees, allowing a couple to boost their retirement income by as much as $17,800 a year. The Treasurer also announced an expanded Pension Work Bonus, allowing pensioners to earn an extra $1,300 a year without affecting their pension payments.

In health, the Government’s much maligned Medicare Rebate freeze comes to an end after four years, with the rebate to rise by 55 cents per visit and the the PBS receives an additional $1.4 billion for new listings, including $241 million to make spinal muscular atrophy medicine Spinraza available through the PBS. Western Australia is also a big winner, receiving $118.9 million to fund improved health infrastructure.

In commending his Budget to the House, the Treasurer implored Australians to ‘stick to the plan’ for a stronger economy “because it is working”, and warned Australians they could not “afford to risk the alternative”.

KEY PARAMETERS

The budget predicts an underlying cash deficit of $18.2 billion, or 1.0 per cent of GDP, in 2017-18, falling to $14.5 billion in 2018-19.
The Budget is projected to return to surplus in 2019-20, with a slim $2.2 billion surplus.
Economic growth is forecast to hit 3 per cent in 2018-19, and remain steady across the forward estimates.
Net debt is estimated to have peaked at 18.6 per cent of GDP this year, falling to 18.4 per cent in 2018-19.
Unemployment is forecast to fall to 5.25 per cent in 2018-19, and remain steady through until 2020-21.
Wage growth is set to gather pace, with the Wage Price Index projected to hit 2.75 per cent in 2018-19, and to rising steadily to 3.5 per cent by 2020-21.
CPI is forecast to lift slightly to 2.25 per cent in 2018-19, and remain steady at 2.5 per cent across the forward estimates.

FURTHER READING