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Queensland Economic Advocacy Solutions

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Federal Budget 2018-19 Preview for Queensland

The Federal Budget to be delivered next Tuesday evening (7.30pm AEST, 8 May 2018) is undoubtedly Treasurer Scott Morrison's most important and complex balancing act.

The Coalition is under pressure (self-imposed) to provide a ‘sugar hit’ that best positions it with a looming election but at the same time it has an expectation from bolted on conservatives and the business community to tackle the problems of competitiveness, debt and deficit.  These are the competing tensions of this Federal Budget.  

Many believe the Coalition has squandered this term in office and in short their legacy will rest on the outcome of the budget.  So here’s what we know one week out from the main event:

Fiscal Background

As part of the December Mid-Year Economic and Fiscal Outlook the Government anticipated delivering a reduced deficit in 2017-18 down from $29.4 billion in the Federal Budget (May 2017) to $23.6 billion in the MYEFO (December 2017).  If anything the revenue outlook has been even stronger since then and the Coalition is rolling in increased tax receipts courtesy of a surging economy delivering company tax windfalls and jobs growth (376,000 in the past year) boosting income tax.

Analysis suggests the Coalition will have at least $8 billion per year to either channel into the budget’s bottom line and the paying down of debt or alternatively spending it on tax cuts and infrastructure.  In respect to the 2017-18 budget deficit, this will fall to approximately $14 - $15 billion which will be the smallest deficit since the last budget surplus recorded in 2007-08.  The Treasurer has confirmed that the projected return to a balanced budget in 2020-21 is well and truly on track.

Budget Repair

However despite the progress in trimming the deficit, net debt will continue to rise and will peak at $365 billion (18.5% of GDP) with an annual interest bill of $14.5 billion.   In short we are making little inroads into a substantial pay down in debt.  The progress has been painstakingly slow and at present expenditure is still substantially exceeding revenue. The path back to surplus really hinges on maintaining strong and steady activity in the Australian economy which is no surety.

The biggest agitators for budget repair unsurprisingly come from the business community.

The Government’s should reinforce confidence in the path to fiscal sustainability.  The Government should stay the course on the proposed phase-down in the corporate tax rate over the coming decade and should use this initiative to build a program of more far-reaching tax measures that puts Australia’s tax arrangements on the more solid foundation that will become all the more important in coming years.”

AI Group Budget Submission

“ACCI calls on government (current and future) and the community it represents, to always be conscious of its legacy. That is, we must be aware of whether we are leaving future generations in a better (or worse) position to face whatever uncertainties circumstances dictate.  This leads to two questions that we must answer: Is the current level of spending (the deficit) appropriate? How will future generations benefit from our deficit spending today?”

ACCI Budget Submission.

Fixing the embedded budget deficit in my opinion should remain the highest priority otherwise we burden future generations to either higher taxes or reduced services yet ‘politics of populism’ (ie winning the next election) will trump the need to repair the budget.   Any fix is extremely difficult with over 50 per cent of the budget comprised in expenditure relating to social security, welfare and delivery of health services, no go areas for much of the community.  Substantial cuts to spending are extremely unlikely to occur as I can not see a Government taking spending cuts into an election campaign. Accordingly 'repair' will only occur on the revenue side as opposed to the expenditure side of the Budget.

Tax

What we know for sure is that the proposed 0.5 per cent increase to the Medicare levy, to help pay for the National Disability Insurance Scheme, has been scraped and will instead be paid for by higher than anticipated tax receipts.

Scott Morrison has also confirmed that the budget will be the third in a row to include provision for cutting the company tax rate, even though the Turnbull government has been unable to get the legislation through the Senate.  It is heartening to see the Government persevering with provisions under the Government’s Enterprise Tax Plan which would see a company tax rate of 25 per cent phased in over the coming decade for all businesses not just ones with a turnover less than $50 million.

In addition, the Coalition has indicated that it is seeking to cut the tax liability for middle income Australians.  Exact details are not yet known but there are a range of options on the table.  The only constraint is the competing tension with the commitment to return the budget to surplus in 2020-21 and the desire to be seen as fiscally responsible.

The $8 billion in extra money available would buy a $5000 lift in each of the top three income tax thresholds or a cut of one percentage point in each of the four tax rates.  Priority is anticipated to be placed on the 32.5 per cent rate at the $37,000 threshold.

Queensland Infrastructure

Queensland infrastructure will do very well out of this Budget due to a Coalition aiming to shore up support in key Queensland seats ahead of the election.  Twelve Queensland seats are held by a margin of less than five per cent ​and to give you an idea of where the pork barrelling may occur I have provided below a full list of these seats and the margins that they are held by each Party. Infrastructure announcements that have already been made include:

  • $500 million to protect the Great Barrier Reef from climate change and pollution;
  • $1 billion to add extra lanes to the M1 on the Gold Coast;
  • $800 million funding towards a $1 billion upgrade for the Bruce Highway between Cooroy and Curra, bypassing Gympie; and
  • Potential $300m in funding for the Brisbane metro bus project.

​ A full list of infrastructure projects worthy of consideration can also be found here.

Wrap Up

This is the very last chance in the eyes of the public for the Coalition to hold its head up high. So how should windfall tax receipts be spent?  Perhaps a better question is how will windfall tax receipts be spent?

The answer to that is unsurprising …. This has obviously not been the term of Government that the Coalition would have hoped for - from citizenship dramas to the banking royal commission and the inability to a passage much of its legislative agenda.  It has no balance accrued in the area of political goodwill.  Accordingly this will be a budget with the proven practice of sweeteners in the area of spending targeted at marginal seats and tax cuts to middle income families.

QEAS will be releasing its post Federal Budget analysis on Tuesday 8th May 2018 evening.  To subscribe please click here.

2016 Federal Election Results for Queensland

 

 

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Hi Gene,
This form the AEC ......
"As House of Representatives and half-Senate elections are usually held simultaneously, the earliest date for such an election would be Saturday 4 August 2018. As the latest possible date for a half-Senate election is Saturday 18 May 2019, the latest possible date for a simultaneous (half-Senate and House of Representatives) election is also Saturday 18 May 2019."
So yes they could go in earlier 2019 using the MYEFO as a mini budget. As usual .... on the money GT!
Cheers

Nick

Reply

Nick, they'll get another chance at a budget next year if they run full term won't they? Also if revenue growth is strong this year they can include some sweeteners in the MYEFO. I expect there's much more to come in the lead up to the next election.

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