Treasurer Josh Frydenberg last night handed down the Coalition government’s final budget before the May election with a heavy focus on tax, small business and a “$55bn turnaround” on the decade-long budget deficit.
Addressing parliament, Frydenberg highlighted the “record levels” of unemployment, school and healthcare funding that have been achieved since the coalition came to power, while warning that global economic circumstances, as well as natural disasters, still threaten gains.
Widespread tax cuts topped the fiscal agenda, while infrastructure spending, support for small business and relief for the agriculture industry, featured heavily.
“This budget builds on our plan for a stronger economy,” said Frydenberg.
“We are delivering a budget that firstly restores our nation’s finances without increasing taxes, second it strengthens our economy and creates more jobs through a significant skills and infrastructure agenda, and third it guarantees essential services like schools, hospitals and aged care,” he added.
By next year the budget will have a surplus of $7.1bn making it the first time in more than a decade that a surplus has been recorded. Frydenberg said the result would be a “$55bn turnaround on the deficit inherited a decade ago” and showed Australia was on track to eliminate commonwealth net debt by 2030 or sooner.
Largely seen as an attempt to woo voters ahead of next month’s election, the budget showed a shift in focus since current PM Scott Morrison handed down his spending plans 11 months ago.
Then, the focus extended to reverse mortgages, SMSFs and special funds for industry bodies to promote non-core activities.
Referred to by Frydenberg as “the largest personal income tax cuts since the Howard government”, this part of the budget included election sweeteners alongside structural reform with one heavy recurring theme – to reduce the cost of living.
One of the first announcements was immediate tax relief for low- and middle-income earners, amounting to $1,080 for single people or up to $2,160 for dual income families.
More than 10 million tax payers will benefit with four million expected to qualify for the full amount.
Long term structural reform included a reduction in the tax rate from 32.5% to 30% from 1 July 2024. In effect, those earning $45,000 to $200,000 – estimated to be 94% of all tax payers – will pay no more than 30 cents in the dollar.
As expected, these cuts build on Scott Morrison’s 2018 budget, which saw tax relief worth $530 per year handed to those earning less than $90,000.
While the cuts were welcomed, Frydenberg also highlighted the government’s progress on tax avoidance and promised more funds to financial regulators to crack down on offenders, with more than $1bn going to the ATO’s Tax Avoidance Workforce.
The cuts came only hours after comparison site Finder released data that estimated 4.8 million households were currently experiencing “various forms” of financial distress.
More than two million Australian small businesses will also benefit from a tax cut as the company tax rate for SMEs with an annual turnover less than $50m drops to 27.5%. It will be lowered by a further 2.5% by 2021 – 22.
“People running a small business put their livelihoods on the line…. They pay their workers first and take their own wages last…. We want small business to prosper,” Frydenberg said.
Further, the instant asset write off will be further extended following a $5,000 increase of the threshold in January. Following the budget, businesses with a turnover of up to $50m – up from $10m currently – will be able to write off up to $30,000 of equipment per tax year.
Not only will this cover an additional 22,000 businesses, but the facility can now be used every time an eligible asset is purchased. Already more than 350,000 businesses have access to the write off facility, according to government figures.
The support offered through the budget comes only months after the government announced its $2bn SME securitisation fund, which is expected to increase the availability of credit and lower borrowing costs for business owners.
Plans to extend “record” funding to both ASIC and APRA were announced prior to Tuesday’s budget, with ASIC receiving 25% more funds than the previous year and APRA receiving 30% more.
Most of the additional funds are expected to be used to meet the recommendations made by the royal commission, despite ASIC and APRA receiving $4.7m and $2.7m respectively in the 2018 budget for the same purpose.
No further funds were announced for them last night however, the government did say it is “taking action on all 76 royal commission recommendations,” despite only weeks ago promising not to enforce a trail commission ban.
Housing and society
Last year, Scott Morrison announced that anybody drawing a pension would be able to take out a reverse mortgage and SMSF lending also came into the cross hairs. This year, retiree finance concentrated on aged care with the government pledging an additional 13,500 residential care places from 2019 – the largest number ever in a single funding round.
Incidentally, opposition continues to build for Labor’s negative gearing policy, which is expected to swing votes next month.
Across social media, Australia made its thoughts known.
Taking to social media, shadow treasurer Chris Bowen posted a series of tweets saying the budget is confirmation that the economy “is not working for everyday Australians”.
In one tweet he said, “There is no plan for wages, no plan to tackle power prices, no plan to address climate change, and no plan for the future.”
In another he continued, “The budget confirms net debt has more than doubled on the Liberals’ watch (up from $175 billion in 2013 to $373.5 billion this year). Net debt under the Liberals amounts to nearly $15,000 for every person in Australia.”
Meanwhile Scott Morrison highlighted that the budget surplus means that funding for essential services will be protected. He tweeted, “Under our economic plan, unemployment has fallen, over 1.2 million jobs have been created, & welfare dependency is at its lowest level in 30 years.”