The Week that was…
“What you saw in the federal budget was actually a significant change in direction for the way in which the Australian economy is going to be run into the future.
No more are they saying the way to get the budget back into balance is to actually cut expenditure wherever you can…with Scott Morrison and Malcolm Turnbull it is a different strategy; one which says we’re going to try and grow the economy faster.
So what happens is the national income and eventually taxes grow faster than what our expenses do – now that’s a punt. Because if you don’t get that growth, quite clearly, the debts will start will rise”
The 2017-18 federal budget was handed down on Tuesday evening by Treasurer Scott Morrison and it was the talk of the whole week.
I was in Canberra, reporting live from the Parliament House Press Gallery on Tuesday, and I have to say there was a lot of anticipation for this budget.
Surprisingly, a lot of it had already been leaked with the Government’s major shock, a $6.2 billion tax, over four years, on the big four banks, including Macquarie Group, being leaked only a few hours prior to the speech.
This rumour alone wiped a near $13 billion off all four banks stock markets and sent the Banks into a very angry downward spiral.
But of course there was more to the budget than just this new tax. It is definitely a “spend big, tax big” budget that many would expect from a Labor government.
A renewed focus on health and infrastructure, commitment to Medicare and the NDIS, as well as announcing that the deficit will actually be in surplus by 2020-21 was welcome news to many.
But as per usual, there were many winners and losers of this budget. Here are just some:
First Home Buyers – In an attempt to fix the housing affordability issue that dominates the Eastern seaboard, from July 1, 2017, young people will be given the option of salary sacrificing part of their pay to their superannuation to access a kind of super-charged savings account, which will allow young people to salary sacrifice up to $30,000 from their pre-tax income to later go towards a first home deposit. However, they can only save up to $15,000 per year.
The government says when it comes time to cash out; the scheme will leave savers about 30 per cent better off overall than if they went with a typical deposit savings account.
Not a bad idea but it won’t fix the housing affordability problem.
Education – As announced by Education Minister Simon Birmingham and Prime Minister Malcolm Turnbull two weeks ago, education is expected to receive an extra $18.6 billion in funding over the next 10 years. This is being known as Gonski 2.0 as the model will not discriminate between public, private and Catholic schools.
Medicare – The Government is hitting back at Labor’s “Mediscare” campaign with a new Medicare Guarantee Fund to cover essential healthcare.
It will provide $1 billion over four years from 2017-18 for the phased unfreezing of the Medicare rebate, starting with bulk billing incentives for GPs in July 2017, moving on to specialist consultations in 2018, specialist procedures in 2019 and diagnostic imaging in 2020.
Some medicines could be cheaper as more items are listed on the Pharmaceutical Benefits Scheme and doctors are encouraged to prescribe generic brands.
There will be an extra $2.8 billion in funding for hospitals, including $730 million for Tasmania’s Mersey Hospital.
The Medical Research Future Fund will get $65.9 million towards preventive health research, clinical trials and breakthrough research investments, and $5.8 million will be provided for research into childhood cancer.
This announcement certainly took Labor’s thunder…
But this comes at a cost which I will go into a bit later.
Western Sydney Airport – The federal government is holding up their promise to build Western Sydney Airport.
It will provide up to $5.3 billion in equity to establish WSA Corporation Limited from 2017-18 to develop the airport. Works are expected to commence by late 2018 and airport operations by 2026, creating 20,000 jobs.
Western Australia – The state will get $1.6 billion to go towards a $2.3 billion road and rail infrastructure package in partnership with the state government. This will include a combined $1.2 billion towards the METRONET rail project and $100 million for better road access to the Fiona Stanley Hospital precinct.
The federal government will also top-up WA’s GST payment by $226 million.
People worried about their gas bills – The government will provide $86.3 million over four years from 2017-18 towards assessing three possible onshore unconventional gas sites and identifying potential environmental impacts.
It includes providing $28.7 million to encourage and accelerate responsible development of onshore gas for the domestic market.
Constraints on increase gas supply on the east coast of Australia, and of current and potential gas production in offshore South Eastern Australia will be examined.
The Australian Competition and Consumer Commission will be given $6.6 million over three years from 2017-18 to establish a monitoring regime for the gas market, meaning industry will have to provide more information about factors that impact supply and pricing.
Everyone – remember how I said that the Coalition will for definite be supporting Medicare and the NDIS but how they were to pay for it was the issue…well here is their solution. You’ll be paying for it. The Budget will hit most workers hard, with an $8 billion tax grab.
The Government will increase the Medicare levy from 2 per cent to 2.5 per cent of taxable income from July 1, 2019.
You’ll only be exempt if your income is below the threshold of $21,655 for singles, $36,541 for families and $34,244 for pensioners.
Other tax rates that are linked to the top personal tax rate, such as the fringe benefits tax rate, will also be increased.
The measure is predicted to make $8.2 billion revenue for the Government over four years.
Anti-vaxxers – Parents who don’t vaccinate their children will be $14-a-week worse off, with $28 set to be wiped from their family tax benefits every fortnight.
The measure, which will start from July 2018, is expected to raise $15 million over four years, while sending a tough message to those who fail or refuse to immunise their children.
Welfare recipients – If you’re on Centrelink, expect to be hit by a tough new regime aimed at saving $632 million over the five years from 2016-17.
A crackdown on unemployed Australians with drug and alcohol habits will include penalties for those who fail to turn up to appointments or work-for-the-dole placements due to intoxication, with payments to be reduced or cancelled.
The measures include a drug testing trial of 5000 new welfare recipients, and new rules making drug addicts and alcoholics ineligible for disability pensions for medical conditions “caused solely by their own substance abuse”.
Those who test positive to illicit drugs will have their welfare payments placed onto a cashless debit card, which can only be used to pay for legitimate living expenses.
Foreign investors – Foreign investors in Australian residential property are facing tougher rules, including the removal of the main residence capital gains tax exemption, tightened compliance and a cap 50 per cent sales to foreigners in new developments. There will also be a “ghost tax” of at least $5000 per year on all foreign investors who fail to either occupy or lease their property for at least six months of the year.
I’ll go into more detail about this later but big banks will be hit with a levy on liabilities of $100 million or more from July 1, to reap $6.2 billion for the government over the next four years.
Smaller banks will face fines of $50 million and $200 million for larger banks if they breach misconduct rules.
Foreign workers – As well as previously announced changes to the 457 visa system, the government will also introduce a levy on businesses that employ foreign workers.
From March next year, the levy on foreign workers on certain skilled visas will go towards a new Skilled Australians Fund.
Small business will have to pay $1200 per year for a foreign worker, along with a one-off $3000 payment. Larger businesses would pay $1800 a year per worker, along with a one-off payment of $5000.
This is expected to bring in $1.2 billion over the next four years to go towards training Australian workers.
I mentioned the banks will be hit with a tax, a very large tax. And while there is pretty much bipartisanship support for it, the banks are not happy.
Earlier in the week I spoke to the Commonwealth Bank Chief Executive Ian Narev who said that the very least the treasury could’ve done was informed the big banks prior to the budget being handed down.
The Australian Bankers Association Chief Executive, who I also spoke to this week, said that the banks will fight this tax as it means it could end up that the customers could have to be the ones to pay for it through higher interest rates.
Submissions are due from the banks on Monday – it will be very interesting to watch this.