Building bridges seems to be the aim of the recently announced Federal Budget 2015-16

By VISH VISWANATHAN

Boost or blues?

By and large, it is a fact universally acknowledged that the topic of a national budget is neither attractive nor appealing to the common man, unless it affects him in some way.

For years I have watched politicians speaking, debating, selling their budget proposals through any available medium from TV, radio, the press and even online chat; and then watching them try and backtrack on their poll promises has been interesting and often amusing.

Promises to keep?

Take for instance the pre-election debate on TV channel ABC during late 2013, between the then Treasurer Chris Bowen and Shadow Treasurer Joe Hockey. Mr Bowen refused to state publicly how much the government’s plan for better schools – formerly known as the ‘Gonski plan’ – would cost the government beyond the four-year period already budgeted for.

Similarly, Mr Hockey defended the Coalition’s refusal to release its election policies and costings to the general public, on how the party would find funds to support the $20 billion promise of funding for vital infrastructure projects within a year of the election, as promised by Tony Abbott. Mr Hockey also stated confidently in the same debate, “No changes to GST. End of story!”

In 2013, Mr Abbott was voted into the Prime Minister’s chair, and it was hoped that the new Government would find resourceful ways to fund his ambitious election promises without affecting the Coalition and without having to do any embarrassing political backflips.

Tough 2014

However the first post-election budget presented by Joe Hockey in 2014 was undoubtedly unpopular. In an effort to find billions of dollars to support infrastructure, the 2014-15 federal budget proposed drastic cuts to public service, abolition of the Labor Government initiated Gonski educational reforms, reversing Federal-State hospital funding agreements and co-payments to GP visits and medicines under the safety net, a tougher means test for young families and sections of the community with disabilities. This budget was completely unwelcome and invited severe criticism by the media, medical professionals, young families and a host of other vocal critics. Naturally, this backlash affected the popularity of Prime Minister Abbot and his Government, with some of the budget measures seen as ‘broken election promises’. Even the States were unimpressed. In late 2014, the Coalition had no choice but to back down on some of the more unpopular reforms such as scrapping the proposed co-payment for GP visits. As the year progressed, PM Abbott seemed to find fewer fans, and once the ‘leadership’ question began to make media rounds, it was time to start building bridges once again.

Boost or busted

The infrastructure towards building credibility for itself was a critical factor in the current budget. After all, the federal elections are not that far away! The Abbot Government had to safe face and regain its credibility with voters and the business community; and measures towards achieving this end were introduced in the Federal Budget 2015-16. Treasurer Hockey’s opening speech while presenting the budget was hardly surprising; “Today we have taken steps to continue repairing the budget with sensible savings and a prudent approach to spending. We are redirecting funding to areas, such as small business, child care and infrastructure, which will boost growth and create jobs,” he stated.

Key initiatives

• Growing jobs and small business – $5.5 billion including $5 billion of tax relief
• Supporting small businesses, with annual turnover under $2 million
• Encouraging investment by allowing small businesses to immediately deduct each asset costing under $20,000 that is purchased between Budget night and 30 June 2017
• Reducing red tape and unnecessary regulation for small businesses, and supporting start-ups and entrepreneurship
• Providing targeted support for young people who have disengaged from work and study and are at risk of long-term welfare dependency
• Supporting Australian families – a $4.4 billion funding boost
• Delivering $3.5 billion reform package for simpler child care with support worker participation
• Investing $843 million in preschool programs and introducing a Child Care Safety Net
• Two year trial support for eligible families using nannies
• Ensuring fairness of tax system and benefits by removing double dipping from Paid Parental leave Pay
• Investing $1.2 billion in new funding for national security
• Progressing the budget repair in a responsible, measured and fair way

Effect on economy

• The budget deficit will reduce from $41.1 billion in 2014-15 to $35.1 billion (2.1% of GDP) in 2015-16. The budget deficit will further reduce to $6.9 billion (0.4% of GDP) in 2018-19.
• The unemployment rate is expected to peak in 2015-16 at 6.5%, and then decline.
• CPI growth of 2.5% was announced for 2015-16 and 2.75% for 2016-17.
• Growth in real GDP is projected as 2½ in 2014-15; 2¾ in 2015-16; 3¼ in 2016-17; 3½ in 2017-18 and 3½ in 2018-19.

Impact areas

According to Mr Hemant Junnarkar, a Sydney based Financial Accountant, the current federal budget is a tightrope walk to boost the economy through promotional measures, keep citizens happy through various incentives and at the same time, protect the government’s exchequer. He has succinctly summarized the budget for key interest groups as follows:

Individual

1. No change in rates of tax

1. To increase job opportunities for young job seekers, the employers allowed access up to $6,500 in wage subsidies over twelve months

1. Pensions to increase only twice a year, by indexing the average male wage.

Family

1. Families earning between $65,000 and $185,000 will be about $30 a week better off under sweeping changes to childcare.

1. Families with one stay-at-home parent and a household income of $65,000 or more, will lose all childcare subsidies

1. Shift workers such as nurses and police officers may be able to access subsidised nannies with the establishment of a two-year pilot.

1. Parents now unable to claim both an employer-funded paid parental leave scheme and the taxpayer-funded 18-week minimum wage scheme.

1. Large families not eligible for Family Tax Benefit Part A.

1. Parents who don’t vaccinate their kids not to receive government subsidies or payments, except on medical grounds.

Business

1. Small businesses – defined as having a turnover of less than $2 million – eligible for a tax cut of 1.5 per cent if incorporated as companies. Sole operators, partnerships and other unincorporated small businesses eligible for a 5 per cent tax discount of up to $1,000.

1. Business purchases such as cars, ovens, coffee machines, lawnmowers, costing less than $20,000 are fully deductible for tax, on purchase.

GST

1. GST of 10 per cent introduced on online downloads of movies etc.

So what does this mean to the average Australian citizen? Is the 2015-16 budget a mere placebo or does it have a strong foundation? Like most things financial, the budget has it pros and cons.

The pros:

Customer confidence

While the overall budget is still being reviewed and processed in fine detail by financial and political pundits, according to a survey conducted by ANZ-Roy Morgan, consumer confidence has jumped to 3.6% post the budget, to 114.6 – the highest level since early November 2014. Confidence is up a cumulative 5.4% over the last month, suggesting a more positive reaction to the overall budget and the interest rate cut. High profile budget packages aimed at the household and ‘micro’ business sectors were likely key reasons for this lift in confidence. This is in marked contrast to the unpopular 2014-15 budget, which saw consumer confidence plunge to 99.3 (around 15% below current levels), in the weeks following the budget announcement.

Boost to SMEs

According to the Australian Financial Review (AFR), the small business impact is the ‘biggest impact on the budget’. “Not only will the plan provide an immediate spending stimulus, it’s also likely to boost the political fortune

of the Abbott government, particularly as Australia ranks just behind the United States when it comes to the proportion of its adult population starting or running a new business,” it states. Says Glenn Cockerton, National Chairman of Spatial Industries Business Association (SIBA), “Our members are overwhelmingly small businesses, so the instant $20K asset write off will be of particular benefit. Technology in our sector is changing and improving constantly.”

Boost to childcare

Boosting access to childcare constitutes one of the budget’s main sweeteners, with $3.5 billion in new money earmarked over five years. Families using childcare and with a combined income between $65,000 and $170,000 are clear winners. Some families will also benefit by additional funding for nannies.

The cons:

Low income earners lose

According to Fairfax, ACOSS Chief Executive Cassandra Goldie claims that the impact of the last two budgets impact on low and middle-income people is devastating. “By keeping most of the last year’s budget cuts and introducing new ones in the 2015-16 budget, the Abbott Government is stripping more than $15 billion over four years, from families and lower-income Australians, as shown via new analysis by the Australian Council of Social Service,” she claims. The report, obtained by Fairfax Media, says most of the $800 million revenue increases projected over the next five years come from income tax bracket creep and projected economic growth.

Paid parental leave curbed

Under the current Federal Government scheme, eligible working parents can receive government-funded pay when they take time off from work to care for a newborn or recently adopted child. From 1 July 2016, parents will no longer be allowed to access the government-funded paid parental leave scheme if their employer provides a more generous scheme. The proposed changes may have some unintended consequences. These changes may encourage some employers to consider withdrawing their existing schemes (whether they go beyond the government-funded scheme or not), and to use the money saved to offer employees other attractive benefits or payments in addition to statutory parental leave pay.

Older Australians

Workers will lose more than first thought from the pension changes in last week’s budget, as research reveals that older Australians who retire soon could miss out on $5500 a year from the tougher assets test. The new study by research firm Rice Warner shows that the federal government changes — budgeted to save $2.4 billion — will expand over time to reach far more people than expected.

Economy dilemma

According to the Australian Broadcasting Corporation (ABC) cheat sheet on the budget, John Daley, Chief Executive of the Grattan Institute, says the reduced deficit to $7 billion is “plausible, if you believe the economic forecasts, which are rosy … One of the issues is that this budget provides no strategy for getting back to surplus if life turns out to be less rosy than they’re forecasting.” The inability to return to surplus is partially due to last year’s budget savings (or cuts) that did not make it through the Senate. “The budget will not return to surplus even with optimistic growth expectations for the economy,” says Stephen Anthony from Macroeconomics. “They haven’t addressed the spending problem yet – the solution is held up in the Senate.”

Final say

So I can safely conclude that overall, the softer and seemingly ‘fairer’ 2015-16 budget seems to have improved the Abbott Government’s image with voters, as indicated in a recent Fairfax Ipsos Poll. And this is despite some concerns on paid parental leave and the tightened measures against poorer families. Even Opposition Leader Bill Shorten supports some of the new budget initiatives saying, “We will co-operate on national security, overdue drought relief for our farmers and on small business,” in his response speech to the presentation of the federal budget. However, Labor will strictly oppose cuts to hospitals, education, and changes to paid parental scheme, among other issues.

And I have to agree with the general consensus that the 2015-16 version of the budget does seem to be a positive and progressive one for the average Australian citizen. Let’s hope there are no budget backflips as the financial year progresses!

Sources: Commonwealth of Australia data– Budget papers; Fairfax media; Fairfax Ipsos Poll; ABC; Rice Warner; Grattan Institute; SEBA; AFR; ANZ-Rice Morgan