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Treasurer Scott Morrison has handed down what many pundits expect to be the final budget before the next federal election.

In terms of the bottom-line, the Treasurer revealed that the budget would record a deficit of $14.5 billion in 2018-19, with a surplus of $2.2 billion forecast for the 2019-20 financial year. Government spending is projected to rise to 3.1 per cent in 2018-19, before dropping to an average of 1.6 per cent over the next four years.

It is a budget in which the Treasurer has tried to balance traditional Coalition values with measures that are politically palatable. The SAS Group has identified measures contained in three key policy areas that have the potential to shape the national debate between now and the date of the next election.

Personal tax cuts:

By far the biggest shakeup is regarding personal income tax. This budget plunges the issue front and centre into the national debate ahead of the next election, with the Treasurer last night outlining $140 billion in tax cuts over a 10-year period to be delivered in three separate tranches:

  1. From July 1, 2018 there will be an immediate $530 a year tax cut for low to middle income earners. In addition, the 32.5 per cent tax bracket will be adjusted from $87,000 to $90,000;
  2. From July 1, 2022 the 32.5 per cent threshold will shift to $120,000. At the same time the the threshold of the 19 per cent tax bracket will extend from $37,000 to $41,000; and
  3. From July 1, 2024 the 32.5 per cent threshold will again be extended to $200,000 and the 37 per cent bracket abolished altogether, resulting in the number of tax brackets reducing from five to four.
HOW INCOME TAX WILL BE REFORMED
Current System Tranche 1 Tranche 2 Tranche 3
Rate % Threshold From 1 July 2018 From 1 July 2022 From 1 July 2024
Tax free $0 to $18,200 $0 to $18,200 $0 to $18,200 $0 to $18,200
19 % $18,201 to $37,000 $18,201 to $37,000 $18,201 to $41,000 $18,201 to $41,000
32.5 % $37,001 to $87,000 $37,001 to $90,000 $41,001 to $120,000 $41,000 to $200,000
37 % $87,001 to $180,000 $90,001 to $180,000 $120,001 to $180,000 ABOLISHED
45 % $180,000 + $180,000 + $180,000 + $200,000 +

 

Infrastructure spending

Another big-ticket item contained in the budget relates to infrastructure spending, with the Treasurer unveiling $24.5 billion worth of new projects that form part of the 10-year $75 billion infrastructure program. The key new national initiatives are as follows:

  • $9.3 billion – Melbourne to Brisbane inland rail;
  • $3.5 billion – Roads of strategic importance across Northern Australia, Tasmania, New South Wales and the ACT;
  • $1 billion – Urban congestion fund;
  • $1 billion – M1 between Brisbane and the Gold Coast; and
  • $3.3 billion – various upgrades to the Bruce Highway in QLD.

Aged-care, Pensioners and seniors:

Moreover, the Treasurer also outlined a comprehensive aged-care package, as well as a variety of measures aimed at winning over seniors and pensioners. Initiatives announced last night include:

  • 14,000 new high-care places over the next four years, as well as 13,500 nursing home places and 775 short-term care places;
  • The creation of a Commission to oversee nursing homes and investigate allegations of abuse;
  • The creation of a National Register of Enduring Powers of Attorney to prevent elder abuse;
  • A Pension Loan Scheme that will enable full-rate pensioners and self-funded retirees to boost their retirement income by up to $17,800 for a couple;
  • A Pension Work Bonus that allows pensioners to earn an additional $1,300 a year without affecting their pension payment; and
  • Wage subsides for older Australians of up to $10,000.

The political implications?

The Government has attempted to do two things with this budget: outline policies in line with the Coalition’s core values (tax cuts, return to surplus) while avoiding deep and unpopular cuts. By outlining a comprehensive reform to income taxation, the Coalition is attempting to move the national debate away from topics that play to Labor’s strength such as health or the Banking Royal Commission.

Personal income tax cuts are always a lot more popular with voters than tax cuts for large companies. It will be more difficult for Labor to wage the same attack against these tax cuts that have been successful in the debate over company tax. The Opposition Leader needs to be careful that he is not seen as attacking aspiration, with certain voters no doubt attracted to the idea of paying less tax as they climb their way up the income tree.

On infrastructure spending and policies for older Australians, these are simply the sort of initiatives you expect to see a government roll out with an election in mind. There is clearly a demand – particularly across the east-coast of Australia – for either new or upgraded projects that cater for things such as population growth. The fact that a number of these projects will be popular in key marginal seats is certainly no coincidence.

Policies targeting at the elderly is the Government trying to shore up one of its voting bases. Although traditionally inclined to vote conservative, attempted changes to the aged-pension in the 2014 budget along with unpopular reforms to superannuation has left the Coalition vulnerable with older Australians. These initiatives, combined with Labor’s recent policy announcement on dividend imputation, will leave the Government optimistic at regaining the support of this voting group.

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