Reserve Bank of Australia- Canberra – By Bidgee – Own work, CC BY-SA 3.0,
In beginning his budget speech on Tuesday, the Treasurer stated that this would not be just another Budget, in truth; on the cusp of the dissolution of both houses of parliament (the first since 1987) it could not be anything but ordinary.
Structural tax reform touted by the government as being the answer to ever growing debt and deficit was put on hold in favour of more politically palatable reforms.
The modest tax cuts to small business from 28.5% to 27.5% this financial year as well along with the raising of the small business threshold from$2m to $10m will benefit an estimated 870,000 Australian businesses which employ about 70% of the labour force.
Small and medium business are the engine room of the economy. Decreasing the tax burden on small and medium enterprise allows them to buy that new piece of machinery to modernise their operations, open up a new shop and possibly hire more staff.
For these attempts to drive economic growth and deal with bracket creep, these tax cuts as well as the extension of the middle income tax bracket to an upper limit of 87,000 from 80,000 have been hailed by some as unfair leading this chorus was Labor shadow treasurer Bowen stating that they would not be supporting tax cuts. This tax package is expected to deliver a 1% increase to Australia’s GDP.
Though there are perceived benefits for the so called big end of town; those that win from the tax bracket expansion and those in the highest income tax bracket who win with the removal of the temporary deficit levy have also been hit with fundamental changes to the way superannuation is taxed reigning in Concessions for the wealthy whilst providing more flexibility for those not currently working especially women and seniors.
Consistent with the Government’s efforts to reduce the deficit, every expenditure measure has been fully contained and offset in this budget by other measures namely those taxes on the very wealthy and on smokers who will cop four annual price increases of 12.5%.
These measures will see this year’s deficit improve to $37.1bn from $39bn last year and gradually improving each year over the forward estimates with a $6bn deficit in 2019-20 and a projected surplus thereafter.
Many political commentators put words into the reserve bank governor’s mouth yesterday afternoon when the cut in the official cash rate was announced. However far from that decision being a vote of no confidence in the economy that many have taken it to be, it was a reaction to the first quarter inflation figures, which showed that inflation was unexpectedly low. This is largely of the back of falling commodity prices such as oil, which has seen a reduction in the cost of living for many Australians. The statement from the reserve bank governor was generally positive about the economy especially in terms of GDP growth and reduction of the unemployment figures.
It is unlikely that we will see another cut when the reserve bank meets again in August.
Despite yesterday’s rate cut the RBA remain generally positive, Treasury forecasts are generally positive. It has been a while since a treasurer has had much to be positive about. If trend continues then the government should have no problem reaching its fiscal targets; including a return to surplus in 2020-21
By Jonno Belmonte