Federal Budget 2019-20: “Back in the Black, Back on Track”
The Government has returned the Budget to surplus for the first time in 12 years, forecasting a deficit of $4.2 billion for 2018-19 and a surplus of $7.1 billion in 2019-20. This figure is set to rise to $11 billion in 2020-21, $17.8 billion in 2021-22, and settle at $9.2 billion in 2022-23. $45 billion in surpluses over four years are projected to eliminate Commonwealth net debt by 2030 or sooner. Whilst claiming that Australia is stronger than six years ago, Treasurer Frydenberg has said that the job is not finished, with global growth expected to slow and domestic natural challenges, such as drought, still exerting pressure on the Australian economy. To combat these challenges, the Treasurer has declared the answer is a stronger and more innovative economy rather than higher taxes.
Claiming that “taxes will always be lower under the Coalition”, the Treasurer has announced that the previously-legislated three step plan will now deliver $158 billion in additional tax relief beyond the $144 billion measure originally outlined. The Government will double the low and middle income tax offset from 2018-19, affecting more than 10 million taxpayers earning up to $126,000 annually. This will ensure the Government’s tax ‘speed limit’ of 23.9 per cent of GDP continues to be met, but is only marginally more generous than the tax cuts already announced by Labor. The Budget also lowers the 32.5 per cent tax rate to 30 per cent from 1 July 2024, meaning workers earning between $45,000 and $200,000 will pay the same rate.
Continuing its support for small business, the Government has increased the instant asset write-off from $25,000 to $30,000 and expanded it to include businesses with a turnover of up to $50 million, covering an additional 22,000 businesses in Australia.
In response to the Banking and Financial Services Royal Commission, the Government has committed $607.7 million to support the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA), with additional funds for the Department of Treasury and the Office of Parliamentary Counsel. The Government has also committed $1 billion over four years from 2019-20 to extend and expand the Australian Taxation Office (ATO) Tax Avoidance Taskforce.
Infrastructure spending continues to feature in this year’s Budget, with a sizeable $100 billion in funding promised over the next decade. This will include $2 billion allocated to build a high-speed rail service between Melbourne and Geelong, $2.2 billion for road safety improvements, $1 billion to improve freight routes, and $100 million for regional airports. Funding for the Urban Congestion Fund will be increased four-fold to $4 billion.
In a bid to win back disaffected voters, the Budget includes significant spending in the traditionally Labor-dominated areas of health, education, and skills investment. The Government has also sought to reassure voters of its commitment to Medicare, unveiling a major investment in mental health and a $1.1 billion Strengthening Primary Care package, which includes $448 million for GPs to better care for high needs patients. The Government has also committed $187.2 million to lift the Medicare indexation freeze from GP services, along with $107.8 million for new hospital and health care infrastructure and services. The Budget also includes $331 million worth of new and amended listings on the Pharmaceutical Benefits Scheme (PBS) for medicines to treat lung, bladder, kidney and skin cancer, and leukaemia.
In education and training, the Federal Government has unveiled a $525.3 million apprenticeship and vocational education package to target skills shortages. A further $453.1 million has been allocated to extend the National Partnership on Universal Access to Early Childhood Education until the end of 2020, enabling 350,000 children to receive 15 hours of early learning per week in the year before school. The Budget also allocates $93.7 million over four years to establish a new scholarship program to increase the number of domestic and international students studying in regional locations.
Building on previous budget measures to support older Australians, $725 million has been allocated to deliver 10,000 new home care packages and a regionally-focused capital works program, and improve the quality and safety of aged care services. At a cost of $285 million, the Energy Assistance Payment will feature a one-off cash handout for more than four million eligible pensioners – $75 for singles and $125 for couples – to combat rising energy costs. The Government has also set aside $500 million to fund a Royal Commission into the mistreatment of people with a disability. The Budget locks in a $3.5 billion funding package for the Climate Solutions Package, announced in February.
While the budget is designed to showcase the Coalition’s economic management credentials, the question is whether it is a budget for 2006, not 2019, as it is unclear whether surplus budgets still carry the political clout they once did. It is also unclear whether the Coalition will have enough time to sell its “teachers, tradies and nurses” tax cuts before the election. Ultimately, through this budget, the Government has firmly placed tax and fiscal policy on the election agenda. It remains to be seen how the Labor Opposition will choose to respond on Thursday night and throughout the upcoming campaign.
For further information on key portfolio measures, please refer to GRACosway’s detailed briefings:
- Defence, Foreign Affairs and Trade
- Health, Families and Social Services
- Infrastructure, Regional Development and Cities
- Communications and the Arts
- Resources and Industry, Jobs and Small Business
- Environment and Energy, Agriculture and Water Resources
- The Budget predicts a surplus of $7.1 billion in 2019-20 equal to 0.4 per cent of the GDP. Some $45 billion in surpluses are projected over the forward estimates.
- The Budget projects $18 billion in net debt, with an aim to eliminate net debt by 2029-30.
- Economic growth is forecast to reach 2.75 per cent in 2019-20, increasing to 3 per cent by 2022-23.
- Unemployment is forecast to remain steady at 5 per cent in 2019-20, and remain the same until 2020-21.
- The Wage Price Index is projected to remain at 2.75 per cent in 2019-20, and to then rise steadily to 3.25 per cent by 2020-21.
- CPI is forecast to lift slightly to 2.25 per cent in 2019-20, and increase to 2.50 per cent by 2022-23.