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Monday, December 18, 2017

MYEFO. Nowhere near enough to fund tax cuts

Scott Morrison wants you believe the budget's strong enough to fund tax cuts.

It isn't, and the update makes that clear.

As it is required to do, it spells out the stated aim of the budget - what the Coalition has pledged to achieve since its election - on page 31.

The aim is to "deliver sustainable budget surpluses, building to at least 1 per cent of GDP, as soon as possible, consistent with the medium-term fiscal strategy".

That's a surplus of 1 per cent of gross domestic product, as soon as possible, consistent with quality spending and economic growth.

After a boost to the budget of about $10 billion over four years, what has it been left with?

A budget surplus of just one half of one per cent of GDP by the end of the four year projection period.

It's an improvement. The May budget pencilled in 0.4 per cent. But it's nothing like the 1 per cent of GDP the Coalition itself adopted as a target to be reached "as soon as possible". And beyond those four years the graph in the update shows the surplus staying put at half a per cent of GDP right out to 2027.

Weakening that budget position by giving some of it away, as the Prime Minister and Treasurer are hinting they will in next May's budget, would be a further abrogation of a pledge the Coalition hasn't come near fulfilling ever since it made it in 2014.

Improving the budget, certainly improving it by the billions that would be needed to fund reasonable tax cuts, is hard. Almost all of the $10 billion improvement this time came came from (generally mining-related) higher company profits and superannuation earnings, as well as lower than expected payments to Australians who are out of work. Government actions improved the outlook by about half a billion. It won't be enough.

In The Age and Sydney Morning Herald

 

Fresh push for company tax cuts as economy lifts budget $10 billion

Treasurer Scott Morrison has signalled a fresh push to get the government's $50 billion package of company tax cuts through the Senate, saying that US President Trump is forcing his hand and that the changing composition of the Senate gives him a chance.

Higher than expected company tax receipts helped improve the budget position by $10 billion in the update released on Monday, improving the outlook for 2017-18 by $5.8 billion.

"The Trump tax cuts are coming," Mr Morrison told a Parliament House press conference. Allowing Australian rates to stay high while others fell would kill the goose that laid "the golden egg".

Australia's Senate has passed only $24 billion of the government's $50 billion package of company tax cuts, cutting the 30 per cent rate for small businesses but not for big ones. President Trump is within days of cutting the US rate to 21 per cent.

"When you have the United Kingdom going down to 17 per cent and many jurisdictions, even France now going to 25 per cent, we can't leave Australian workers behind," Finance Minister Mathias Cormann told the press conference.

"The future of job security and the future career prospects and wages growth of Australian workers depend on the Senate passing the government's company tax cut."

The government needs the support of 10 crossbench senators. Resignations and disqualifications since the July 2016 election mean that next year six of them will be new.

Senator Cormann said the $10 billion boost was so big that after this financial year the government would no longer need to borrow to fund day-to-day business.

"That's a year earlier than anticipated at the time of the budget," he said. It would be the first time since the global financial crisis.

The fastest jobs growth in decades meant less was being paid out in Newstart and other benefits. Measures taken in the Coalition's first budget to slow the growth in welfare payments were bearing fruit.

Key measures in the budget update include longer waiting times before newly arrived migrants can access payments, including paid parental leave and family tax benefits.

From July 2018, the two-year waiting period for these payments will be extended to three, though some exemptions will apply for vulnerable groups and New Zealand citizens living in Australia. The measures will save $1.2 billion.

Savings from the university sector of $2.8 billion have been dumped after being blocked by the Senate. Instead, a series of measures including a freeze on Commonwealth payments to universities will deliver a net saving of $2.1 billion.

And $400 million will be saved over four years by withholding family tax benefit lump sums from people who have outstanding social security debts.

In what Victoria's treasurer Tim Pallas is describing as a slight, the update cuts Victoria's share of infrastructure funding from 10.3 per cent to 9.4 per cent. Victoria has 26 per cent of Australia's population, and 37 per cent of Australia's population growth. The NSW's share has climbed from 44.6 per cent to a mammoth 45.5 per cent. 

"The Prime Minister of Sydney has struck again," Mr Pallas said. "He continues to shortchange Victorians, while sending more money to his home state of NSW."

The update forecasts wage growth of just 2.25 per cent this year, down from the 2.5 per cent predicted in May. It forecasts 2.75 per cent in 2018-19, down from 3 per cent.

Offsetting this, the government is expecting better than previously forecast employment growth, with the unemployment rate expected to be 5.5 per cent by June 2018, followed by near full employment of 5.25 per cent in mid 2019.

The economic growth forecast has been shaved by a quarter of a per cent, down from 2.75 to 2.5 per cent. Consumer spending is forecast to grow by 2.5 per cent rather than 2.75 per cent.

"We had much lower-than-expected consumption growth in the September quarter, just 0.1 per cent, said Mr Morrison. "There was, rightly, a lot of concern about what was happening with household living costs. That's why the National Energy Guarantee and other measures have been put in place. We would hope to see  better consumption figures going forward."

Even so, the growth was forecast to climb to 3 per cent in 2018-19 on the back of a lift in private and public sector investment, both of which hade been revised higher.

Shadow treasurer Chris Bowen said he was happy to debate taxes with Mr Morrison because his priorities were "all wrong." 

"The reason the budget is still such a mess is because Malcolm Turnbull and Scott Morrison continued to shower the biggest tax concessions on the people in our community, the millionaires and multinationals, who need tax breaks least, as well as jacking up taxes on people who work in middle Australia," he said. 

In The Age and Sydney Morning Herald