Economic growth this year will be 4.25 per cent (nominal), up from a forecast 3.5 per cent. In the context of the 2018-19 Federal Budget, this translates to a near $26 billion revenue windfall to the Government’s coffers, compared to the Mid-Year Economic and Fiscal Outlook projections from December. Fully half of this increase is a result of improvements in personal income tax receipts – more people in more jobs, paying more tax.
A return to surplus has gone from being a mirage on the distant budget horizon, to almost within grasp. In only two more years, and after 11 consecutive budget deficits spanning four Treasurers, in 2019-20 we will see a modest, $2.2 billion surplus (which the Budget papers politely refer to as the budget being in balance). The realisation of the Government’s target of a budget surplus of one per cent of GDP will have to wait until beyond the forward estimates.
Tax cuts amounting to $140 billion over the next decade – admittedly, the vast bulk of which are significantly back-ended - and only modest further expenditures savings of $400 million over the forward estimates, are probably the clearest signal yet of an imminent Federal election.
Indeed, you have to look closely to try to find any real losers in Treasurer Morrison’s third budget. In addition to income tax cuts across the board, there are a host of new expenditure programs. These include signature initiatives in the health sector and funding for medical research, as well as significant spending on infrastructure (particularly transport), aged care, environmental protection, education and training, spending in the regions, a pensioner work bonus, and investment in public technology infrastructure. It really is budget generosity that would make Oprah Winfrey blush!
Against the backdrop of a Royal Commission, though, financial services were always going to figure in the 2018-19 budget. The budget retains the bank levy on liabilities, announced last year, and reaffirmed the Government’s commitment to establishing the new Australian Financial Complaints Authority, which will stand-up on 1 November this year. There are consumer-friendly reforms flagged for the superannuation sector, intended to make it easier and cheaper for Australians to change funds, and to cap fees on accounts with low balances.
The black economy is also in the ATO’s sights, with an estimated tax dividend of $5.3 billion over the next four years, along with a move to ‘level the playing field’ for the digital economy. From 1 July 2019, the Government will extend GST to apply to offshore sellers of Australia accommodation – think here the many overseas-based web platforms – with a discussion paper to come shortly on further options for taxing digital businesses in Australia.
In what is clearly a pre-election budget, the Government has certainly delivered with a wide range of announcements likely to be favourably received by Australian individuals and businesses. The immediate hurdle will be navigating the Senate, and securing cross-bench support for any measures which are not waved through by the Opposition. From there, time will tell if the announced measures will result in long-term and sustainable economic prosperity for the country.
Chief Economist & Partner, PwC Australia
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