Treasurer Joe Hockey has unveiled a A$5.5 billion jobs and small business package to kick start confidence, in a second Coalition budget that strategically retreats from some of the harshest measures of its predecessor.
The budget presents an optimistic outlook for the economy, but also indicates there are risks ahead both internationally and locally. Hockey defended the budget numbers saying he had always been cautious on forecasts.
The budget forecasts a deficit of $41.1 billion this financial year, falling to $35.1 billion in 2015-16, with falls in each subsequent year of the forward estimates. Despite a massive hit on revenue caused by a crashing iron ore price, Hockey told Parliament: “our timetable back to a budget surplus is unchanged from last year.” That is for a surplus in 2019-20.
“Australia’s budget position is getting stronger each and every year,” Hockey said. “We’re still on a clear and credible path back to surplus and gross debt in a decade will be over $110 billion lower than what we inherited.”
The government has juggled the need for the budget to look “fair” and minimise political danger, with the requirement to show that it is still committed to fiscal repair over the longer term.
In its latest spectacular retreat, it has dropped the 2014 plan to force job seekers under 30 to wait up to six months for Newstart, now proposing that people under 25 should wait a month.
Small business gets a bonanza, with $5 billion in tax relief for businesses with an annual turnover below $2 million.
The government says 96% of Australian businesses will be eligible for a tax cut.
Small corporations will have their company tax rate cut from 30% to 28.5%. Unincorporated small businesses will get a 5% tax discount, up to $1000 a year.
All small businesses will get an immediate tax deduction for every asset that they buy costing less than $20,000. At present the threshold is $1000.
Small businesses can apply the $20,000 rule to as many items as they wish. The measure applies from budget night and runs until the end of June 2017.
“Cars and vans, kitchens or machinery – anything under $20,000 is immediately 100% tax deductible from tonight,” Hockey said.
In a measure the Treasurer described as “just common sense in the digital age”, the government is abolishing all fringe benefits tax on all portable electronic devices used for work such as laptops, phones and tablets.
Hockey told his news conference that small business was going to be the “engine room” of innovation and job creation. “This is about getting on with it,” he said.
The budget forecasts below trend economic growth, with GDP growing at 2.5% this financial year and 2.75% in 2015-16. Unemployment is set to worsen from an estimated 6.25% in 2014-15 to 6.5% next financial year.
Saying the level of youth unemployment in Australia was too high, Hockey announced the government would spend $330 million to help young and disadvantaged people into work. This includes a new $212 million programme to fund community workers in areas where youth unemployment is high.
There will be also $106 million to be spent on intensive support trials for jobseekers of all ages who are facing major barriers to employment.
From November 1, a wage subsidy for parents will be available to help them move from welfare to work – employers who hire a parent who has been on income support for six months or more and is the principal carer parent will be able to receive up to $6500 over 12 months.
Much of the budget had been announced ahead of time, including a revamp of childcare, costing $3.5 billion over the budget period, and a shake up of the pension system which will impose a new assets test but drop last year’s plan to cut back pension indexation.
Among the savings, the government will limit fringe benefits tax entitlements “on overly generous meal and entertainment expenses” capping them at $5000 a year per person, which will save $295 million.
People on working holidays in Australia will have to pay tax on their first dollar earned rather than having the present tax-free threshold of nearly $20,000. This will be a saving of $540 million.
Changes to strengthen Australia’s foreign investment framework with a new fee regime, better enforcement and stronger penalties will bring $735 million over the budget years. Restricting the Zone Tax Offset to those who have genuinely moved to remote areas will save $325 million.
The government has reaffirmed that it will reintroduce its controversial higher education reforms, which would deregulate university fees. The budget announced that the government will pursue the HECS debts of Australians living overseas.
The budget reinforces the prime minister’s priority on national security, with $1.2 billion in new funding, on top of the $1 billion announced last year.
The opposition condemned the budget as shortsighted and fundamentally unfair, saying it had “more tax, more debt and higher unemployment”. Shadow Treasurer Chris Bowen said: “this is not a budget for Australia’s future - this is a shortsighted attempt to save Tony Abbott’s job”.
But business gave a thumbs up to the budget. The Business Council of Australia described it as “sound, sensible and thoughtful”, saying it took pragmatic steps to get fiscal strategy back on track while investing in jobs, participation and the capacity of the economy. “The budget is without doubt a shot in the arm to small business, and creates a better environment for business confidence."
The Australian Industry Group said the budget headed in the right direction. But it warned there were “clear risks that it may not on its own provide the lift in business confidence and demand needed to generate the additional investment required to lift productivity and growth and to make substantial inroads into unemployment over the next few years”.
Greens leader Richard Di Natale in a tweet described the budget as “all in all a small-minded budget from a visionless government”.
Seniors group COTA said older Australians would welcome the confirmation the government had dropped unfair changes to pension indexation, but criticised the budget response to mature age employment, saying there had only been “tinkering”.
Universities Australia welcomed some positive measures, but expressed “deep disappointment at cuts to research programs” and the uncertainty over higher education funding.
The ACTU said that despite selling this as a budget for jobs, the government was still forecasting unemployment at about above 6% for the next three years.
Michelle Grattan does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.
Authors: The Conversation