2017-2018 Federal Budget Expert Analysis - Executive Summary

Today, the Australian Federal Treasurer Scott Morrison handed down the Federal Budget for the 2017-18 financial year.

This Budget is premised on the principles of fairness, security and opportunity with the Treasurer reporting an underlying cash balance deficit of $29.4 billion for 2017-18.

The Government anticipates a significant improvement to the bottom line with a forecasted $7.4 billion surplus by 2020-21 supported by economic growth of 2.75% in 2017-18 and 3% in 2018-19.

Mr Morrison has emphasised the right choices have been made to secure “better days ahead” for Australians.

This optimistic outlook is expected to be fuelled mainly by:

  • rising resource and service revenue;

  • significant investment in transport infrastructure leading to growth in jobs and wages;

  • continued support for small business;

  • lower borrowing costs for recurrent expenditure coined “bad debt”; and

  • an improving global economic outlook.

As expected, the Government has reiterated its concern about the social fallout from the rising costs of living and housing affordability, especially in a low wage growth environment.

Mr Morrison says that this Budget has drawn on practical, reasonable and mature judgements adding that he has listened carefully to the electorate by flagging a comprehensive housing affordability package including initiatives for first home buyers.

The Budget measures contained very little in the way of major tax reform for businesses although banks will contribute further with a bank levy to apply from 1 July 2017 and the multi-national anti-avoidance law (MAAL) will be modified to counter the use of foreign trusts and partnerships in corporate structures effective from 1 January 2016.

The Government remains committed to reducing the tax rate to 25 per cent for all businesses (regardless of turnover) to fulfil its promise of rolling out the “Ten Year Enterprise Tax Plan” originally announced in last year’s Budget.

Key Budget Revenue Measures

In addition to the new major bank levy from 1 July 2017 that will apply to Authorised Deposit Institutions (ADIs) with licensed entity liabilities of at least $100 billion, key budget measures include:

  • increasing the Medicare levy by 0.5% to 2.5% from 1 July 2019 to allow the National Disability Insurance Scheme to be fully funded;

  • extending the instant asset write-off ($20,000 threshold) for small business entities (SBEs) by 12 months to 30 June 2018;

  • increasing ATO funding for black economy audit and compliance programs;

  • a range of CGT measures designed to collect additional revenue from foreign property owners; and

  • the introduction of a GST withholding mechanism from 1 July 2018 requiring purchasers of newly constructed residential property to remit GST directly to the ATO.

 

LexisNexis Capital Monitor Summary:

Treasurer Scott Morrison's second Budget is a marked departure from those previously put forward by the Abbott-Turnbull Government. It is doubly unusual for a first Coalition Budget after an election. The Government has abandoned many of the cuts forecast in previous Budgets, and announced a slate of new spending initiatives. The Treasurer appears to have taken the lessons of the last election, and proposed measures that will cut into Labor's areas of electoral advantage.

The Treasurer promised that the Government is going to "make the right choices for better days ahead". In this, he looks to walk the narrow path between the fiscal conservatism demanded by elements of the Coalition and the electorate's demand for spending on public goods. Extensive spending on infrastructure, particularly in the regions, is likely to appeal to the Nationals.

The Treasurer has "reset the Budget" by abandoning cuts from the 2014-15 and 2015-16 Budgets that have failed to pass the Parliament, absorbing a $13 billion bottom line hit in the process.

While the headline cash balance of this Budget is $48.4 million in deficit, Mr Morrison confidently predicted that the Budget would return to surplus in 2020-21, and remain in surplus over the medium term. It's worth noting at this point that the next Federal election is due in 2019, so the Treasurer may not be in office to see this project through.