Tuesday, May 8, 2018

Today by Paddy Manning

Budget 2018: surplus in sight
It’s a ‘good news’ budget, but who gets the credit?

“We have reached a turning point on debt,” Treasurer Scott Morrison crowed in his pre-budget lockup press conference this afternoon. He was pointing to a PowerPoint slide showing that the government’s net debt will peak in the current financial year, at $341 billion or 19 per cent of GDP, and fall steadily below 5 per cent over the decade to come. It is the only good news we have had in a long while from the Turnbull government, and given that it comes with tax cuts, more infrastructure funding and more money for aged care, it’s hard to complain.

If there’s one thing a very cocky Morrison does not want us to take out of tonight’s budget, it’s that the government has simply got lucky, riding a surge in commodity prices back to the earlier-than-expected surplus in 2019–20. Though he concedes that higher company tax receipts, driven largely by a recovery in the prices of key exports like iron ore and coal, have boosted revenue over the first half of the four-year budget estimates, in the second half the recovery is due to higher personal income tax receipts. “So it wouldn’t be right to say that the overwhelming impact of what is driving receipts up is commodity prices,” Morrison told us, standing alone at the podium as Finance Minister Mathias Cormann watched on, politely. “The numbers don’t say that at all. What it’s largely coming from is people getting in jobs. People getting work. The labour force expanding. People going from receiving welfare benefits to paying taxes because they’re working and they’re earning money.”

See what Morrison did there? The government can hardly take credit for a surge in commodity prices, and it can’t take credit for the rebound in company tax revenue as carried-over losses from the GFC and fallout are slowly used up. In a pre-election budget that he hopes will restore the government’s fortunes, the treasurer wants to shift the debate back to jobs and growth, and try to claim credit for falling unemployment and reduced welfare dependency, which at 15 per cent of working-age Australians is down at its lowest level in 25 years.

The budget papers do not contain heroic assumptions, or vary too much from December’s mid-year economic forecast. Growth jumps a bit to 3 per cent from next financial year, and stays there; terms of trade are predicted to fall by 7.5 per cent over the next couple of years as commodity prices fall back (there is an upside risk if oil prices keep rising, and a downside risk if the dollar falls further below the assumed US77c). Unemployment falls gradually to the mythical NAIRU (non-accelerating inflation rate of unemployment) of 5 per cent and – this a little eyebrow-raising – the budget papers forecast wages growth will jump by 0.5 per cent in 2018–19 and the same amount again the following year. Why? Nothing specific. Morrison is careful not to hoist any petard for himself, cautioning that the forecast return to a modest $2 billion surplus in 2019–20 is subject to the Treasury’s assessment of conditions, etc., etc.

The treasurer’s speech is full of the well-flagged positive announcements we’ve heard already – especially, the $530 a year extra for four million taxpayers earning between $37,000 and $90,000 a year. The only harsh measures mentioned are for the bad guys: more money from multinational tax avoiders and a crackdown on the black economy. The nastier measures are buried deep in the budget papers: $299 million in social welfare debt recovery; $84 million less for the ABC over the three years from 2019–20; a longer wait before refugees and migrants can go on welfare; and a halving in the annual spend on climate programs from $3 billion to $1.25 billion as funding for the Clean Energy Finance Corporation runs out. At the same time there are red rags for progressive voters, like the $247 million committed to entrench school chaplains in our schools.

Complicating the government’s fiscal responsibility triumph is that the Opposition may have gone one better by Thursday. Labor may get the budget back to surplus sooner, while offering bigger tax cuts, by withdrawing extravagant spending in the form of billions in cash refunds for unused franking credits for the wealthy; abandoning big business tax cuts that will benefit the banks; or winding back a negative gearing regime that rewards investors while locking the young out of the housing market. Between the government and Opposition, it is not clear yet who is tighter with the purse strings, and who is looser.


Big ticket items

– Personal income tax cuts ($13.4 billion) 

– Not raising the 2 per cent Medicare levy (cost: $12.8 billion)

– Cracking down on the black economy including "chop-chop" ($5.2 billion)

– Ending R&D rorts ($2.4 billion)

– Extra infrastructure spending including no new toll-roads ($24.5 billion)

– NBN starts drawing down debt ($19.5 billion) 

– “More” school funding ($24 billion)

Budget reaction

The Sydney Morning Herald’s guide to the winners and losers

The Guardian’s Katharine Murphy: Never mind lofty talk of ‘tax reform’. This budget is about political survival

Fairfax’s David Crowe: A victimless budget that will require patience and trust from voters

The Australian’s Dennis Shanahan [$]: An election battle plan, based on tax returns

Paddy Manning

Paddy Manning is contributing editor (politics) at The Monthly and has worked for the ABC, Fairfax, Crikey and The Australian. He is also the author of three books, including a recently updated unauthorised biography of Malcolm Turnbull, Born To Rule?

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