Orange, NSW, May 2018
If you’re wondering why an economic journalist from the Sydney Morning Herald comes to Orange to help launch its Red Shield appeal, the answer’s in two parts. First is that my parents were officers in the Salvos – my father was the Army officer in Bathurst in the early 60s – so I find it hard to say no to them. Second is that, tho these days I hold the rank of backslider, I come from an extended family of Salvationists. My father was one of 14, and he had three brothers and three sisters who also became Army officers. He had an aunt and an uncle who were officers, and six of my cousins are officers, plus a couple of my cousins’ kids – one of whom is David. David’s grandmother Joyce was my father’s youngest sister, which makes David’s father one of my 60 or 70 first cousins, so David is my first cousin once removed. So that’s the second reason I’m here: I couldn’t say no to a cousin.
I want to say a bit about the budget – which has been obsessing me for the past week – and will go on obsessing me until the end of the month – long after all normal people have lost interest.
The next federal election could be held as soon as August or as late as May, it’s not clear which. What is clear, however, is that last week’s budget is the last before the election. And it had all the hallmarks of a pre-election budget.
There was very little bad news in the budget, very little sign of cuts in govt spending, but a range of increases in spending.
Health – increased grants to the states for public hospitals
Added a handful of new drugs to Pharmaceutical Benefits Scheme – expensive
Mediscare
Aged care – 14,000 new places for in-home care
Do more to encourage employers to hire older workers and encourage the retireds to do some part-time work
Making the reverse-mortgage scheme for pensioners more attractive
Half a billion dollars to protect the Barrier Reef
The same on Aboriginal housing in the Norther Territory
The same for the Medical Research Future Fund
A few special deals for regional areas – increase in uni places
About $25 billion on infrastructure projects to relieve traffic congestion in state caps
Tax - big is the income-tax cuts, which we’ll get on to, but first note a few other tax measures. One is the extension of the $20k instant asset write-off for small business.
Another is the decision not to proceed with the decision to guarantee the funding of the national disability insurance scheme by increasing the Medicare levy from 2 pc to 2½ pc in July next year, announced only this time last year. This comes at great cost to the budget – over the next four financial years - $13 bil - almost as much as the cost of the income-tax cuts. Politicians can expect zero thanks from voters for deciding not to go ahead with a tax increase that hasn’t happened. But there is a price – funding of the NDIS is not as guaranteed as it would have been. Pollies not working to any grand plan.
But the budget does contain not increases in tax, but measures that will raise the amount of tax collections. Crackdowns on the black economy, including untaxed cigarettes, abuse of the R&D tax concession, and excessive deductions for personal contributions to super. All this effort to improve the “integrity” of the tax system will raise about $10 billion over four years – compared with the cost of the tax cuts of a bit over $13 bil.
The income-tax cut – in three steps over seven years – is very peculiar. Fascinating. ScoMo has admitted it will cost $140 bil over 10 years – absolutely huge – but only about 10 pc of that will be spent in the first four years, leaving 90pc over the remaining six.
One of the things that’s strange is the resurrection of the low-income tax offset. But the main thing to note is that the main measure – worth a flat $530 a year – or $10 a week – to people earning between $40k and $100k a year – starts in six weeks, and will happen. The second step four years later in July 2022, gives people on $120k and above a saving of about $2k a year ($40 a week), while the third step in July 2024 – six years from now – will increase the tax cuts of everyone earning above $120k and leave those earning $200k or more with tax cuts worth more than $7k a year, or almost $140 a week.
It’s the second and third steps that account for most of the cost of the package. They are so far into an uncertain future that I think they’re irresponsible commitments to make when the budget is still in deficit and the government’s debt is still rising. They’re unlikely to be legislated before the election and unlikely ever to happen, even if the Coalition is re-elected.
The budget’s forecasts for the economy is that it will soon be growing quite a bit faster than it has been, mainly because wages – which for the past four years have been very weak, growing by only about 2 per cent a year, the same as the rate of inflation – have already started to recover. And in just a couple of years’ time will be back to growing at 3½ pc a year. I really hope this comes to pass, but it sounds pretty optimistic to me.
But that’s enough about the budget – or, at least, enough from the perspective from which we usually view budgets: what’s in it for me and mine. If I’ll be better off, whether others would be worse off is no concern of mine. I’ll vote for the party that best represents my interests.
This is a budget with immediate tax cuts aimed at middle and upper middle income-earners. The median full-time wage is about $70k; median income for all workers – full time and part-time - is about $50k, and the full-time minimum wage is just under $700 a week, or $36k. As we’ve seen, the big payoff is for people earning more than $100k and. Particularly, more than $200k – if it ever happens.
What this budget isn’t about is low income earners, including people, partic mothers, with part-time jobs, the unemployed and others.
Punishment – ScoMo said in his budget speech “you must not punish people for working hard and doing well”.
But there is punishment in this budget. Dole
