The projected deficit is $161 billion for 2021-22, but rather than tackling this in the next four years, the government’s focus is instead on payments and long-term serviceable debt.
The government is projecting a bump in real GDP growth in the next financial year, before growth settles again over the near future.
Part of the reason the government can afford to keep spending high is the low cost of international debt. This means that while net debt will continue to increase beyond the next four years the budget estimates cover, net interest payments should remain low.
And another major factor in the budget’s performance – despite the big spending – is the impact of a very high iron ore price, in the midst of a global pandemic.
The chart below shows the difference between policy decisions and other factors, generally beyond its control.
With a major focus on business and infrastructure spending to revive the economy, extensions to tax benefits and announced packages for childcare, there are many spending announcements in this year’s budget and very few cuts or savings.
The difference is so great that we have drawn out some of the major spending announcements and included all significant cuts in our headline figures for this year’s budget.
At the height of the coronavirus emergency, and on the back of devastating bushfires, Australia’s much awarded and trusted national broadcaster has again been forced to make major cuts to staff, services and programs. It is doing so to offset the latest $84 million budget shortfall as a result of successive cuts from the Coalition government.
In the latest cuts, wrapped up as part of the national broadcaster’s five-year plan,
250 staff will lose their jobs
the major 7:45am news bulletin on local radio has been axed
ABC Life has lost staff but somehow expanded to become ABC Local
independent screen production has been cut by $5 million
ABC News Channel programming is still being reviewed.
Even the travel budget, which allows journalists and storytellers to get to places not accessible by others, has been cut by 25%.
These are just the latest in a long list of axed services, and come off the back of the federal government’s indexation freeze.
Announced in 2018, that freeze reduced the ABC budget by $84 million over three years and resulted in an ongoing reduction of $41 million per annum from 2022.
The indexation freeze is part of ongoing reductions to ABC funding that total $783 million since 2014. In an email to staff, Managing Director David Anderson said the cut to the ABC in real terms means operational funding will be more than 10% lower in 2021–22 than it was in 2013.
To be fair, the way in which the ABC executive has chosen to execute the latest cuts does make some sense, pivoting more towards digital and on-demand services. Right now, the commuting audience that has long listened to the 7:45am bulletin is clearly changing habits. However, with widespread closures of newspapers across the nation, the need for independent and trusted news in depth, that is not online has never been more important.
ABC Life is a particular loss. It has built an extremely diverse reporting team, reaching new audiences, and winning over many ABC supporters and others who were initially sceptical. The work they produced certainly wasn’t the type commercial operators would create.
Clearly the coronavirus pandemic has slashed Australia’s commercial media advertising revenues. But the problems in the media are a result of years of globalisation, platform convergence and audience fragmentation. In such a situation, Australia’s public broadcasters should be part of the solution for ensuring a diverse, vibrant media sector. Instead, it continues to be subject to ongoing budget cuts.
Moreover, at a time when the public really cannot afford to be getting their news from Facebook or other social media outlets, cutting 250 people who contribute to some of Australia’s most reliable and quality journalism and storytelling – and literally saving lives during the bushfires – appear to be hopelessly shortsighted.
The latest Digital News Report 2020 clearly showed the ABC is the media outlet Australians trust the most.
These latest cuts join a long list of axed services in the past seven years. They include
public interest journalism (Lateline and state-based 7.30) axed
While not everyone will miss every program or service that has gone, and even with its occasional missteps, there is no doubt the ABC is the envy of the liberal democracies that do not have publicly funded assets, particularly the United States.
Has the ABC’s budget been increased?
Communications Minister Paul Fletcher has continued to suggest the funding cuts are not real, are sustainable without service reductions for Australians, and has claimed the ABC has received “increased funding”.
The minister’s comments are not consistent with data we published last year based on the government’s own annual budget statements and the reality of the ongoing situation for the ABC.
The government argues base or departmental funding is higher in 2020-21 than it was in 2013-14. The relevant budget papers do show that in 2013-14, the ABC was allocated $865 million for “general operational activities”. The most recent budget statement shows this has increased to $878 million in 2020-21.
So how can it be the ABC budget shows this increase when we have been arguing they are facing an overall cut?
First, we noted last year the complexity of the budget process, which means, for example, the reinstatement of short-term funding can be counted as extra funds, or the ending of such funds, while reducing an agency budget, will not appear as a reduction in allocation.
Second, the 2020-21 ABC budget reflects the inclusion of indexation for increases in CPI-related costs between 2013-14 and 2018-19. This is the funding that is being halted until at least 2021-22.
So despite statements to the contrary, nothing can change the fact the ABC has suffered massive cuts in recent years. The data published last year showed the reality of the ongoing situation for the ABC, with an annual cost to its budget in 2020-21 of $116 million. As the table below shows, taking into account actual budget allocations and adding the items cut, frozen or otherwise reduced, the ABC should have funding of approximately $1.181 billion in 2020-21, not the $1.065 billion it will receive.
It is against this background the latest funding freeze, due to a failure to meet the impact of inflation costs, occurs. While it doesn’t sound like a lot, the three year impact is $84 million, and has resulted in the cuts announced today.
But more importantly, these ongoing cuts represent an attack by the federal government on the broadcaster, its role in democracy, and in keeping Australians safe, informed and entertained.
On September 10 1965, Sir Robert Menzies commissioned the National Art Gallery Committee of Inquiry to consider the establishment of a national gallery for Australia.
The resulting Lindsay Report, published in 1966, is an ambitious document, describing an art gallery to serve the nation through the quality and range of its collections and exhibitions.
It emphasised the need to have an all encompassing collection of Australian art. The report recognised, in the second half of the 20th century, it was not possible to acquire a significant collection from European art history and advised a focus on modern art, including from Indigenous Australian artists, south and east Asia, and the Pacific Islands.
James Mollison became the gallery’s first director and began collecting work in 1971, construction began in 1973, and the National Gallery of Australia finally opened in 1982. The Lindsay Report was most recently reviewed in 2017, and is still the guiding document for the gallery’s foundation and continuing collection policies.
Menzies understood a culture that supported the arts and the humanities was essential to Australia’s development. Although his aesthetic taste was conservative, often described as reactionary, he greatly valued the arts.
For many years, his successors showed equal enthusiasm for seeing the National Art Gallery grow into international prominence.
Now, with subsequent efficiency dividends, the gallery is facing a budgetary shortfall and will lose 10% of its staff. The gallery has also recently reduced the number of new acquisitions, leading some to assume a connection to the loss of funding. This is not the case.
A $6 billion collection
In the late 1970s, after the prices paid for American and European art became a political issue, the Fraser government placed restrictions on the price the gallery could pay for international art. Any major purchases would now require permission from parliament.
As the gallery’s acquisition budget was not otherwise constrained, the gallery redirected its purchases to create an encyclopaedic collection of Australian art. Over the years, the collection has matured into a balance between Australian, American, European, Asian and Pacific art, still keeping the bias towards art of the 20th and 21st centuries as proposed by the Lindsay report
The collection now comprises almost 160,000 works of art valued at A$6 billion – a remarkable achievement for a collection that began only fifty years ago.
Over the last decade, the gallery has added an average of 2,134 items to its collection each year, including 863 new purchases.
In the early years, under James Mollison’s directorship, there was a need to build the collection from a very small base of works that had found their way into the hands of the old Commonwealth Art Advisory Board.
Collections policy is not governed by numbers of works but by the nature of what is available, and how it relates to other works already in the collection. Once the collection was established, acquisitions could be focused on areas of particular need. Ron Radford expanded the Pacific collection; current director Nick Mitzevich is focused on contemporary art.
The gallery’s significant budget cuts will not impact the acquisitions budget. Gallery director Nick Mitzevich tells The Conversation the $16 million annual spend on buying art will be maintained, and cannot be appropriated for other purposes.
With such a collections base to work from, he says the gallery will focus on the quality, rather than quantity, of works which can be purchased from the same budget: collecting major works, or, as Mitzevich describes, “absolute excellence”.
But while the acquisitions budget is being maintained, other gallery departments are facing serious budget cuts.
With the exception of the Australian War Memorial, which will receive a controversial $500 million expansion, Australia’s national cultural organisations have been hit exceptionally hard by a succession of conservative governments.
The gallery’s operations budget must comply with the Australian Public Service’s efficiency dividend. This year, operating revenue is reduced by $1.5 million. To counteract this reduction, the gallery will cut 10% of its total staff, beginning with voluntary redundancies.
This will inevitably mean a loss of senior staff, some of those with the greatest expertise.
Shifting worlds
It has been a difficult year for the gallery. Due to smoke from the bushfires on January 5 and 6, the gallery had to close for the safety of its collection, including the major summer blockbuster Picasso and Matisse.
It was the first time the National Gallery of Australia has ever closed for more than one day.
Then, COVID-19 struck. The gallery shut its doors on March 23, not re-opening until June 2. Visitor numbers remain small. Yesterday, only 250 came through the doors. This time last year they were in the thousands.
Mtizevich has yet to calculate the full cost of these dual disasters to the gallery’s revenue. He told The Conversation the act of keeping to budget while keeping faith with the National Gallery’s objectives is “not an easy job, a tightrope”.
He is adamant the collections policy will remain unchanged.
Joanna Mendelssohn, Principal Fellow (Hon), Victorian College of the Arts, University of Melbourne. Editor in Chief, Design and Art of Australia Online, University of Melbourne
This week the Reserve Bank of Australia did something everyone expected and the US Federal Reserve did something almost nobody expected. Both are revealing.
At its monthly meeting Australia’s central bank cut official interest rates by 25 basis points to a record low of 0.5%.
The Fed cut rates by 50 basis points – not at a regular meeting but “off cycle” – in response to the COVID-19 crisis, which looks likely to become a global pandemic.
The Reserve Bank of Australia’s announcement of its decision made it seem COVID-19 was the main, if not only, reason it was cutting rates.
In reality, the bank was always going to cut rates sooner rather than later. Australia’s economic growth remains sluggish on a per capita basis, wage growth is still hovering about 2%, unemployment is 5.3% and inflation has been below the 2-3% target band for Philip Lowe’s entire time as governor (since September 2016).
The US economy, by contrast, is doing better on all these measures. Unemployment is at its lowest rate in several decades. Wage growth is above 3.6% on an annual basis.
That makes the US rate cut far more revealing about the Fed’s view on the economic effects of COVID-19.
The Fed’s Open Market Committee is worried. US stock markets responded to the announcement by dropping about 3%, before recovering the next day.
One tool in the box
There is a narrative in Australian business circles, among certain commentators – and voiced by former treasurer Peter Costello – that the Reserve Bank’s interest rate cuts no longer do anything to spur investment and growth because rates are already so low.
Moreover, the argument goes, by cutting rates the central bank sends a negative message about the state of the Australian economy.
Interest-rate cuts alone won’t solve the problem. But it is the tool the Reserve Bank has at its disposal. There is also good reason, as I wrote late last year, to believe the normal transmission mechanisms of monetary policy are still working.
As almost every mainstream economist has said, prior to the COVID-19 outbreak the Australian economy needed significant fiscal stimulus rather than the balanced-budget fetishism of the current Coalition government (and, to be fair, also the current Labor opposition).
We are now going to see some targeted stimulus because of COVID-19, but that won’t address the Australian economy’s pre-existing problems.
Sending a message
Curiously enough, the critique of the Reserve Bank of Australia just mentioned applies quite well to the US Federal Reserve’s decision to cut rates dramatically – and do so off-cycle.
The Fed cut its rate range from 1.5%-1.75% to 1.0%-1.25%. Doing so used up a lot of its remaining monetary policy ammunition.
And the virus crisis is not just a demand-side problem where consumers aren’t spending. It’s also a supply-side problem where businesses are unable to produce what consumers might be willing to buy. No rate cut can repair global supply chains disrupted by mass factory closures in China.
What the Fed definitely did do is send a message that the virus crisis is going to be a really big deal. That helps create its own vicious cycle of beliefs on the demand side as consumers respond to the rate cut by increasing precautionary savings and cutting back on spending.
So the Fed used some of its limited ammunition in a way unlikely to be very effective, and has freaked out markets and consumers. Oops.
A time to borrow and spend
Coming back to Australia, it will be important to unpack both the Reserve Bank’s monetary response and the federal government’s fiscal response. How much is a response to COVID-19 and how much to the underlying weakness of the Australian economy?
The real fear is that too little will be done, especially with fiscal policy, to address that underlying economic weakness.
There is some hope, now the prospect of a budget surplus has essentially evaporated, the Coalition government will be free to do what it should have been doing all along – making long-term investments in the Australian economy.
Let’s not forget the government can borrow for 10 years at 1% in nominal terms – a negative interest rate when adjusted for inflation. Debt markets will essentially pay us to borrow from them. That is a rare opportunity to make smart investments that will pay huge dividends in years to come.
In an enormous week for economic news at the start of the month, parliament passed the government’s three-stage personal income tax plan, and the Reserve Bank cut official interest rates to an unprecedented low of 1%.
It happened against the backdrop of a flagging economy in dire need of stimulus.
As the bank cut rates to a record low, its governor Philip Lowe again warned about the waning power of rates (monetary policy) to lift the economy.
Monetary policy does have a significant role to play and our decisions are helping support the Australian economy. But, we should not rely on monetary policy alone. We will achieve better outcomes for society as a whole if the various arms of public policy are all pointing in the same direction.
Lowe and many others – including yours truly – have repeatedly pointed out that spending on physical and social infrastructure can do what lower rates can’t do well – boost the economy while lifting its productivity. So, too would other productivity-enhancing reforms, particularly in the labour market.
And, of course, the government’s tax cuts will also stimulate the economy when they come into effect.
With tax cuts, timing’s the thing…
The obvious problem is that much of stimulus from those tax cuts will happen years from now, rather than today.
What the government should have done was insist on enacting all three stages of their tax plan immediately. Not staggered over several years, not in 2024-25. Now.
That would have, of course, pushed the budget into deficit in the short run, and that would would have run counter to the government’s narrative about being responsible economic managers.
But how responsible is it to prioritise one’s own political brand over the economic health of the nation?
Let’s not forget where the timing of the government’s tax plan came from. 2024-25 is outside the budget’s so-called “forward estimate” period and thus the impact on the deficit or surplus projections is not apparent.
It was the same rationale that underpinned the glacial, decade-long pace at which the government’s “enterprise tax plan” was to move to a 25% company tax rate. And it is the same set of dodgy accounting tricks that Wayne Swan was a master of for everything from health to education spending commitments.
…and the timing could be immediate
Productive infrastructure spending is hard to enact quickly. Spending on social infrastructure like education and training has a long lead time.
And structural reform of the industrial relations system might is probably the hardest and longest of all to put in place.
They are real constraints.
The Reserve Bank faces another, the so-called “zero lower bound” of conventional monetary policy and the complexities and uncertainties of unconventional policies such as quantitative easing.
But a government which won a mandate for its tax policies, and who frankly has the Labor opposition in a tailspin, could have insisted on all three stages of the tax cuts immediately.
The only thing standing between the economy and the aggressive fiscal stimulus it needs is the government’s obsession with balancing the budget regardless of the circumstances.
We’re not in the best of times
Don’t get me wrong, I think debt and deficits most certainly do matter. The government deserves credit for chipping away at the structural budget deficit, and we shouldn’t be running deficits in good economic times.
But we’re not in good economic times. We’re standing on the precipice of the first recession in nearly three decades. We’re looking at highly uncertain global conditions, domestic economic growth that has slowed to a trickle, sluggish wages growth, persistently high underemployment, and even the possibility of Japanese-style deflation.
The irony is that if, with the failure to enact sufficiently bold stimulus, we do tip into a recession, the red ink will flow all through the budget. Unemployment benefits and welfare payments will rise, personal and corporate income receipts will fall, GST revenue will drop. And young people who enter the labour market during a recession will suffer for years to come.
The downsides of not enacting sufficient fiscal stimulus far outweigh whatever benefits there are of a glide to path to budget balance while avoiding a recession.
It’s certainly not the time for hand-wringing
Coming back to Lowe’s admonition that we need the “various arms of public policy…pointing in the same direction”, here’s where we currently stand: The bank has acted, but far too late. For years it told us that 5% unemployment was as good as it could get long-term, to be patient and to wait for higher wage growth and inflation.
It’s been a mere five weeks since Lowe stopped impersonating Charles Dickens’ character Wilkins Micawber, who was fond of saying “something will turn up”.
Now the treasurer Josh Frydenberg is giving us his version of the same routine. On one hand he says personal income tax cuts are crucial to boosting employment and spending. On the other hand, he says we’d better wait.
The Australian economy can’t afford to wait for aggressive stimulus. The government has shown more concern for its political brand than for our economic health.
The government’s tax relief package is shaping up as the first test of incoming opposition leader Anthony Albanese, with Treasurer Josh Frydenberg declaring on Friday it must be supported “in its entirety” when put to the new parliament.
But Albanese has only guaranteed support for the first tranche. As for the later cuts for higher income earners, “we will consider that,” he said on Friday.
But let me tell you, it is a triumph of hope over experience and reality that the government knows […] what the economic circumstances are in 2025 or 2023, in the middle of the next decade.
Appearing with Albanese on the Nine Network, Trade Minister Simon Birmingham said:
Albo, it would be remarkable if your first act as leader of the opposition was […] to oppose a long term package of tax relief – that would show a real tin ear for the Australian people”.
In an interview with The Conversation, Frydenberg refused to be drawn on what the government would do if unable to get the whole bill through.
It would, however, be hard for it to avoid splitting the bill – to hold out would deny the immediate relief pledged in the April budget.
All or nothing
Nor could Frydenberg say when parliament will meet to consider the legislation, although the government has effectively conceded it will not be in time for the promised July 1 start of the additional tax offset promised in the budget. (A smaller offset from last year’s budget will be paid from then.)
But Albanese said the tax cuts could be passed in time for July 1, because it would only need a couple of hours of sitting. “We’ll do a deal. I can do that. One speaker a side, and Bob’s your uncle.”
Frydenberg said Reserve Bank Governor Philip Lowe had highlighted the positive impact the tax cuts would have on household incomes.
“Let’s too not forget that $7.5 billion will flow to households in the coming financial year, as a result of these tax cuts,” Frydenberg said.
Tax cuts as good as rate cuts
“This benefit to households and the economy is equivalent to two 25 basis point interest rate cuts and is one reason why growth and household consumption is projected to pick up,” he said.
“The tax reforms we are putting to parliament are not just providing immediate relief, but leading to long term structural change. This will tackle bracket creep and reward aspiration.
“Earning more is nothing to be ashamed of and should be encouraged not punished. Rewarding aspiration is in the Coalition’s DNA and will be a fundamental driver of our policies in government.”
In his assessment of the economic outlook, Frydenberg had two messages.
He said in his discussions with some of Australia’s biggest employers, “I’ve been buoyed by their confidence and their desire to work with the government, to support continued economic growth and job creation”.
Headwinds worsening
But the economy “faces significant headwinds. Trade tensions between the United States and China have increased, with the potential to negatively impact global growth.
“Were there to be another round of US tariff increases, the potential for which has been flagged publicly, the proportion of global trade covered by recent trade actions would double from 2% to 4%.”
Also, flood, drought and fires had taken a toll and the housing market slowdown was hitting dwelling investment and having an impact on consumption.
The challenges made the government’s agenda for growth, including tax relief, so important and time critical.
Asked whether the “headwinds” faced by the Australian economy were stronger than at budget time, when he also spoke of headwinds, Frydenberg said: “I think the tensions between China and the US have increased”.
Frydenberg spoke with the US Treasury Secretary Steve Mnuchin this week and the two will meet in Japan at the G20 finance ministers meeting in a few weeks. Frydenberg stressed in the conversation the importance of free trade to Australia and its wish to see disputes resolved as amicably as possible.
Asked whether, if the economy deteriorated further, the government would be willing to live with a smaller surplus next financial year than the $7.1 billion projected in the budget, Frydenberg said, “that’s the amount that we’re committed to”.
He would not be drawn on the signal this week from Lowe that an interest rate cut was coming.
The Treasurer said the current unemployment rate of 5.2% reflected “strong labour market performance”.
While there are no plans for an overhaul of federal-state relations by the re-elected government, Frydenberg said he would work closely with the states on infrastructure and managing population.
He said he would respond fully to the Productivity Commission report on superannuation, although he had not set a date for this.
“The issues that were raised through the Productivity Commission report which we need to have a good look at are about the unintended multiple accounts and the under-performing funds,” he said.
“The royal commission [on banking] recommended having a single default [account], which we accepted and Labor accepted, so we’ll go ahead and do that”.
Despite some reprieve in the 2019 federal budget, the ABC is still in dire financial straits. More job losses and a reduction in services remain on the agenda.
The Coalition government has provided another three years of tied funding of A$43.7 million specifically for the national broadcaster’s “enhanced news-gathering” program. This program supports local news (particularly regional and outer-suburban news gathering), national reporting teams and state-based digital news.
But this funding doesn’t address the broadcaster’s need for more stability in its operational funding.
In July, the ABC will start to feel the full impact of a three-year, A$83.8 million indexation freeze on its funding, which was contained in the 2018 budget. So devastating is the size of that cut – and the ones prior to that – that ABC managers are almost completely focused on money, undermining their capacity to be strategic about the future.
There is no provision in the 2019 budget to restore the funding lost over the past six years and certainly no boost to cater for the dynamic and changing media environment.
Audiences who value what the ABC does now – and what it needs to be doing to support Australian democracy into the future – should take a closer look at the numbers, the way the money has been allocated and the impact of that.
To illustrate the need for more secure operational funding for the ABC, one of the authors of this article, Michael Ward, conducted research on just how much the broadcaster stands to lose in the aggregate over the course of an eight-year period. Ward used a number of public financial sources to build the table below, including ABC portfolio budget statements and ABC answers to Senate Questions on Notice
One of the difficulties in looking at budgets is the way forward estimates work. As the figures in the table show, the past six budgets have included measures to reduce, remove or freeze (indexation) ABC funding, without adding any new funding initiatives.
This has resulted in an accumulated reduction in available funding of A$393 million over a five-year period, starting from May 2014. According to current budget forecasts, this also means the ABC stands to lose A$783 million in funding by 2022, unless steps are taken to remedy the situation.
The Coalition government and others would argue, however, the ABC actually received a reprieve in this year’s budget with committed funding for “enhanced news gathering” because it treats as “new” the renewal of tied fixed-term funding as it expires.
The “enhanced news gathering” and digital delivery funding was first enacted by the former Labor government in 2013. Although “enhanced news gathering” funding has been renewed twice by the Coalition government since then, including in this year’s budget, the amount allocated for the program was slashed in 2016.
So, while it appears that the current budget announcement is good news for the ABC, the reality is, it is simply a continuation of what should be seen as core business.
One way governments of all ilks have tried to control the ABC – and to win voters over – is by providing tied funding to specific programs like this. One of the earliest examples of tied funding was a National Interest Initiative by the Howard government in 2001, and later the Rudd government’s Children’s Channel and Drama Funding Initiative of 2009. These were seen as core to the ABC’s work, and were eventually made part of the ABC’s ongoing budget.
The problem, of course, is that voters do not understand the impact of the cessation of limited-term, tied funding programs.
We argue that tied funding is also contrary to the principles of independent public broadcasting because it effectively forces the broadcaster to prioritise its activities and programs at the current government’s whim. It also inhibits longer-term effective financial planning by the ABC.
Tied funding used by all parties
If elected, the ALP has committed to restore the A$83.8 million indexation freeze for the ABC included in last year’s budget. It has also promised an additional A$15 million for specific projects to restore short wave radio to the Northern Territory and add more local and regional content, emergency broadcasting and a news literacy program aimed at combating misinformation campaigns online.
These commitments are important, but the freeze is just the tip of a funding iceberg that the ABC has been dealing with for the past six years. The continuation of a tied funding approach doesn’t address the underlying budget problem. More needs to be done.
JERAA argued that the ABC has been cowed by repeated parliamentary inquiries, funding cuts and efficiency reviews. These have had a severe impact on the broadcaster’s ability to perform its important role for the Australian people, which includes production of excellent public affairs reporting, local programming, international news, children’s programming and services on a range of current and emerging platforms.
Tied funding stops the ABC from meeting the core components of its legislated obligations, particularly digital content delivery, where the cost of success – increased take up of services – carries an extra financial burden, unlike analogue broadcasting.
Unless the ABC has ongoing stability of funding and ideally an increase that allows it to keep innovating, it won’t be able to maintain relevance in this fast-moving, globalised media world, nor will it be able to continue as a watchdog on people in power, particularly governments.
Some of it involved tax cuts way out into the future, in 2022 and 2024, with which we needn’t concern ourselves – there’ll be two, maybe more, elections before then.
The bit that was to start in mid 2018 (and did) wasn’t a tax cut at all, strictly speaking. It was an “offset” with an ungainly name: LMITO – the Low and Middle Income Tax Offset.
A standard tax cut, applying to any rate, would save money to all taxpayers on that rate and rates above it, including those on very high incomes. It couldn’t be directed to just low and middle earners, which is what the Coalition wanted.
What’s on offer isn’t really a tax cut
So the Coalition designed an offset, to be paid as a lump sum after the end of each tax year, after returns had been submitted and only to those taxpayers whose returns showed they weren’t high earners.
The full offset was A$530 per year, paid only to taxpayers who earned between $48,000 and $90,000. Taxpayers who earned more than $90,000 would lose 1.5 cents of it for each dollar they earned above $90,000, meaning no-one who earned more than $125,333 would get any of it.
(Taxpayers earning more than $125,333 wouldn’t go home completely empty handed – they would benefit from an increase in the point at which the the second highest rate came in, worth a barely consequential $135 a year.)
Taxpayers who earned less than $37,000 would get $200 off their tax, climbing to $530 for taxpayers earning $48,000.
It was ungainly – it was better described as a series of annual lump sum payments than a tax cut – and Labor embraced it entirely.
In 2018 Labor trumped it
Except that Labor supercharged it. Under Labor it was to operate in exactly the same way, except that each payment would be 75% bigger: the Coalition’s $200 became Labor’s $350, the Coalition’s $538 became Labor’s $928 and so on.
Labor outbid the Coalition.
And these things stayed, for almost a year, except that it was all a bit academic.
Labor wasn’t in government, and the leglislated offsets weren’t to put the lump sums in pockets until after the end of June 2019.
In 2019 the Coalition trumped Labor
It allowed the Coalition to sneak in before them in Tuesday’s budget and double the maximum lump sum: $538 became $1,080, a promise Bill Shorten matched in his budget reply speech on Thursday night.
But for some reason the Coalition didn’t double everything: $200 only became $255, rather than the $350 Labor had already promised.
On Thursday night Shorten confirmed the $350 promise.
He is able to offer the 3.6 million Australians earning less than $48,000 more than the Coalition – in most cases an extra $95 more: $350 instead of $255.
Now Labor has trumped the Coalition
Shorten says it’ll cost an extra $1 billion over four years, which is a mere fraction of the money Labor believes it will have that the Coalition won’t, because of its crackdowns on negative gearing, capital gains tax concessions and dividend imputation.
As Shorten put it on Thursday night:
Labor will provide a bigger tax cut than the Liberals for 3.6 million Australians all-told, an extra $1 billion for low income earners in this country. Here’s the simple truth – 6.4 million working people will pay the same amount of income tax under Labor as the Liberals. Another 3.6 million will pay less tax under Labor.
In fact they’ll pay just as much tax from payday to payday, but they’ll get back more at the end of the year, in most cases $95 more.
So here’s the scorecard:
Annual tax offset by taxable income. Source: Australian Labor Party
Bill Shorten has moved to make the ABC an election issue, promising to reverse the Turnbull government’s $83.7 million budget cut and to guarantee funding certainty over the broadcaster’s next budget cycle.
Ahead of appearing on the ABC’s Q&A program, Shorten and frontbench colleagues declared the Coalition had “launched the biggest attack on the ABC in a generation”.
In recent months Communications Minister Mitch Fifield has sent a stream of complaints to the ABC about stories, both online and on air, contesting facts and interpretations. The Prime Minister’s Office has also complained. Government frontbenchers and backbenchers frequently make cracks at or about the ABC, echoing a theme of many conservative commentators.
The ABC is also under constant attack from News Corp, driven by both ideology and commercial interests. The government has an inquiry underway into the ABC’s competitive neutrality, which was part of a deal with Pauline Hanson but also important in the context of News Corp’s argument about the government-funded ABC encroaching on financially strapped commercial media.
When the government made the $84 million budget cut – which took the form of a freeze to indexation – Treasurer Scott Morrison said “everyone has to live within their means”. Managing director Michelle Guthrie said that “the decision will make it very difficult for the ABC to meet its charter requirements and audience expectations.”
In a statement Shorten, communications spokeswoman Michelle Rowland and regional communications spokesman Stephen Jones said Labor’s commitment would ensure the ABC could meet its charter requirements, safeguard jobs, adapt to the digital environment “and maintain content and services that Australians trust and rely on”.
They said the Coalition since 2014 had “overseen $282 million in cuts to the ABC that has seen 800 jobs lost and a drop in Australian content and services”.
“Labor will stand up for the ABC and fight against the conservatives’ ideological war against our public broadcaster,” the statement said.
The promised investment “demonstrates Labor’s commitment to the ABC’s independence and to maintain the ABC as our comprehensive national broadcaster.
“Now, more than ever, Australians need the ABC – our strong, trusted and independent public broadcaster.
“At a time when too many Australians feel disengaged from their democracy and distrustful of their representatives, Labor wants to restore trust and faith in our institutions. Part of restoring trust is is supporting a healthy public interest media sector, and protecting that trusted institution – the ABC”.
In this series – Budget policy checks – we look at the government’s justifications for policies likely to be in this year’s budget and measure them up against the evidence.
In this piece we look at the need for company tax cuts.
Business investment in Australia declined steadily for four years after peaking in 2013. In early 2016, the Turnbull government settled on a series of company tax cuts as their preferred policy to reinvigorate business investment and the economy.
Our modelling shows that a cut to the company tax rate for large businesses will indeed lift foreign investment in Australia, driving an economic expansion and an increase in pre-tax wages, but there is more to the story.
Like many policy changes, there are winners and losers. The give-and-take nature of the tax cut means that the “losers” from the tax cut will be Australian-owned businesses and the Australian government. We find that despite the expansion in GDP, the average income of the Australian population (a more suitable measure of the material welfare of the population) will fall.
Do we need investment to maintain jobs and economic growth?
The jobs growth figures last year – we all know now, more than 1,100 jobs a day – that’s had a really big impact on our economy and we can expect that to continue and now lead to – I would expect – better wage outcomes as long as businesses keep investing and businesses can keep remaining competitive.
– Treasurer Scott Morrison
More investment creates more buildings, equipment and intangible assets that enable workers to be more productive and, in theory, earn higher wages.
If investment is weak for a prolonged period, job opportunities are reduced and wage growth will weaken.
In a well-functioning economy, population growth and technological progress naturally attract investment. When investment only keeps pace with population or employment growth, wages stagnate. For wages to grow, investment needs to be above this level. This happens when there is technological progress, generating the higher returns which attract the level of investment needed.
Australian investment depends largely on foreign finance, so world economic conditions, including rates of corporate tax in other countries, also play a role.
In reality the link between investment and wages is not always clear cut. If unemployment or underemployment is high, investment may lead to growth in jobs without wage growth.
Businesses might also make profits in excess of a “normal” rate of return. These profits exist when new businesses struggle to break into a market dominated by a few large players, and can be an impediment to wage growth.
Even if you do accept that higher investment does lead to higher wages, giving tax cuts to companies to stimulate investment is not justified on this basis.
If company taxes are cut there will be significant costs to government revenue that amount to a “windfall gain” to the (mostly foreign-owned) investments that have already been made on the basis of the 30% tax rate. On balance, the positive impact on growth and wages is not enough to justify the loss of this revenue.
Is there a problem with business investment in Australia?
Business investment is critical to economic growth. When firms are empowered to invest in new productive capacity and technology, it supports innovation and helps create new opportunities and employment for Australians.
– Treasurer Scott Morrison
Business investment is now showing signs of picking up. In a speech late last year, Reserve Bank deputy governor Guy Debelle saw “signs of life” in investment growth, particularly in the services sector and in infrastructure projects completed by the private sector on behalf of the public sector.
A Grattan Institute report identifies four very good reasons for the four-year decline. These include a return to “normal” investment following the mining boom and an overall decline in the amount of money needed to create capital goods in most industries. The report also points to an ongoing shift towards households spending more on services such as retail, cafes, and professional services and slow economic growth overall.
Viewed in this light, there are plausible and benign reasons underlying the decline in investment. These suggest that it is not a large enough problem to justify “repair” in the form of a costly tax cut.
What’s the verdict?
Certainly business investment has weakened over the last five years, and along with this we have seen weak wage growth. It would be foolhardy to argue against the need for more business investment. Jobs and growth underpinned by a healthy level of investment are essential aspects of a modern society.
But cutting the company tax rate is not the way to go. It may deliver more business investment and economic activity, but by forgoing taxation revenue from existing investment, it comes at a cost to the average income of the Australian people.
To reap the benefits of strong business investment without a costly tax giveaway, Australia must continue to play to its strengths. Reducing the government revenue base through a cut to company tax will undermine the sort of stable, prosperous society that underpins the world-class environment that we strive to offer all investors.
“At a time when too many Australians feel disengaged from their democracy and distrustful of their representatives, Labor wants to restore trust and faith in our institutions. Part of restoring trust is is supporting a healthy public interest media sector, and protecting that trusted institution – the ABC”.
To reap the benefits of strong business investment without a costly tax giveaway, Australia must continue to play to its strengths. Reducing the government revenue base through a cut to company tax will undermine the sort of stable, prosperous society that underpins the world-class environment that we strive to offer all investors.
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