Federal Treasurer Scott Morrison readied the 2017 Budget with a close eye on increasing revenue to allow for projected spending increases. He didn’t have much room to move – delivering a budget with few surprises and forward projections based on an optimistic outlook.
As Professor Richard Holden said at the start of the BusinessThink 2017 Budget roundtable: "It was a political budget, and it was sort of a cunning budget in many ways on most dimensions. It was a big-taxing budget – there’s no way of getting away from that.”
The roundtable analysed the new embrace of big government in plans for infrastructure projects worth $75 billion during the next 10 years, along with health and education initiatives.
Moderated by Julian Lorkin, the panel of UNSW Business School experts reacted to key budget measures, including the new bank levy and superannuation changes, and discussed ideas around taxation and stimulating the economy that will shape the Australian business landscape.
The academic panel was introduced by Professor Chris Styles, the Dean of the UNSW Business School.
Starting the panel, Professor Holden looked at the economic impact of the budget. He highlighted the forecasts of a deficit of $37 billion for next year and contrasted that with the GDP forecasts.
Professor Holden said there was an assumption that the economy would roar back to health. “I used to refer to these kinds of rosy assumptions three and four years out as Hockey’s Hockey Stick, but I can’t use that any more. However, the same idea basically applies,” he said.
“This year, we’ve got a 2.1% of GDP deficit, and that’s with tax receipts between 23.2% of GDP. That moves to a slight surplus in 2021, because tax receipts as a percentage of GDP go from 23.2 to 25.4%. It’s coming on the revenue side. A big driver of that, apart from some of the tax increases, is the view that the tax base is going to be large because wage growth is going to be high. And it just hasn’t happened for a very long time. We’d like to see it happen – but it’s a very bullish forecast and I think we should be concerned about that,” he added.
The biggest losers in the 2017 budget are banks and businesses who will face increased taxes from 1 July worth $7.4bn over four years. Professor Holden felt the tax on the banks was populist. “The five biggest are going to be hit by this. This is a tax of six basis points. It doesn’t sound like a lot, however it’s all of their funding structure, minus what shareholders put in, minus small deposits, or Mum and Dad deposits if you like. So this is basically 70% of their balance sheet; it’s $1.6 billion a year for those five banks every year.”
Professor John Piggott from CEPAR looked at the budget implications of the First Home Super Savers Scheme, which means voluntary contributions for superannuation are available to be used as a first home deposit.
He said it was a terrible idea. “It gives you tax concessions on your savings for a deposit for a first home buyer. I’ve seen calculations that suggest it’s worth $6000 per person, maybe $12,000 for a couple in terms of tax concessions. I don’t think it’ll make much difference either way in terms of the affordability of housing for young buyers,” he said.
“I think broadly speaking it was a more central budget. It was more reflective of community attitudes than the 2014 budget, or even the 2015 budget, and so there’s a return to some form of normalcy. I think the infrastructure spend, and the emphasis on the infrastructure spend, even though much of it was pre-announced, is encouraging because there’s sort of a change of attitude that we don’t have to mediate all this through the private sector, that the public sector can undertake some of this,” he added.
He noted that what was missing was the idea of broad tax reform. “Even though tax revenues are going up – which I think they do need to do because I come from the population ageing centre, and ageing populations need more taxes. There were tax grabs, and we can debate how appropriate they were. However, the broad tax reform is still missing.”
Professor Kristy Muir, the CEO of the Centre for Social Impact (CSI), said there had been significant investments in housing affordability and homelessness. “We’ve seen an attempt to decrease inequalities around the education initiative with Gonski 2.0. We’ve seen investments in mental health, in health, in disability with a commitment to the NDIS,” she said.
More broadly, though, "I still don’t think it’s going to address the gaps in inequality that we’re seeing between the richest and the poorest”, she added.
Lecturer Kathrin Bain from Taxation and Business Law at UNSW Business School summed up the other changes in taxation in the budget.
“It really wasn’t much of a budget in terms of structural tax reform. There were really no major changes there,” she said.
Australians who earn more than $21,655 will have personal tax hikes from 2019 in the form of a Medicare levy increase of 0.5 per cent to fund the National Disability Insurance Scheme. Bain said "the Medicare levy is increasing slightly, the temporary budget repair levy is being phased out as it had been intended to do so. But there really isn’t much in terms of the broad-based tax reform. So a lot of the changes we’re seeing in terms of GST and CGT, they really are more tax integrity measures, so making sure that the correct amounts of tax are collected.”
She said taxpayers were losers because they would have to pay the extra Medicare levy, but added: "Obviously it is going to fund the NDIS, which we all want to support. Combine that with the reduction in the repayment thresholds for HECS or HELP debts, and people who are above the Medicare levy exemption will be paying extra Medicare and repaying their HECS debt. But overall I don’t think many people are really objecting to that additional Medicare levy, because it is needed and we do want the NDIS funded.”
The full podcast of the entire BusinessThink Federal Budget 2017 round table is available here.