On the same day that the RBA cut the cash rate to a record low 1.75%, Federal Treasurer Scott Morrison delivered his first Budget. It contained a forecast deficit of $37.1bn for 2016-17, a small deterioration from the estimates in the mid-year economic and fiscal outlook released last December. This leaves the deficit at around 2.2% of GDP; about where it has tracked for the last couple of years.
Policy decisions in the Budget were largely as expected, although changes to superannuation arrangements for high income earners were more punitive. Other measures include an expansion in the income tax threshold for the third tax tier to offset bracket creep; a lower tax rate for small business; an attempt to tax the income generated by multi-national companies; and increased tobacco excises. All up these are modest measures that do little to reflect a comprehensive approach to tax reform.
The highly publicised infrastructure component of the Budget appears a little underwhelming. It continues the $50bn spend allocated to infrastructure in the 2013/14 Budget, but adds little new spending. The framework for allocating Federal Government money to infrastructure will be tightened, with greater conditions imposed on assessing the viability of new infrastructure projects.
On the eve of an election campaign, it would not have been surprising to see a strong political bent to the Budget. However, the document appears relatively conservative in nature, perhaps trying to shore up the Government’s credentials as sensible and prudent economic managers and trying to distance itself from the unpopular Abbott/Hockey Budget of 2014 that was widely regarded as “unfair.” Whether or not this will be enough to see the Turnbull government win its first full term of Government on 2 July with enhanced political capital and more confidence in its abilities to guide the economy through the post-mining-boom landscape remains to be seen.
It is important to note that the Budget announcements are still only proposals at this stage.