Research check: we still don’t have proof that cutting company taxes will boost jobs and wages



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There still isn’t clear research showing company tax cuts will increase employment or wages.
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Ross Guest, Griffith University

If you read these headlines you might think we finally have proof that cutting company taxes will boost employment and investment:

These stories are based on analysis of the 2015 company tax cut by consultants AlphaBeta. But the study, as well as some of the media coverage of it, show a worrying misunderstanding of how company tax cuts work.

Simply comparing companies that receive a tax cut with those that don’t isn’t the right methodology to conclude that the 2015 tax cuts created more employment or higher wages.




Read more:
There isn’t solid research or theory to support cutting corporate taxes to boost wages


Cutting taxes lets companies keep more of their profits, allowing them to invest in new equipment and premises for example. The company then needs to hire more workers to work with these new assets. The newly created jobs require businesses to compete for workers and this increased demand pushes up wages across the entire economy.

Suppose a retail company gets a tax cut and opens a new store. It advertises for workers, many of whom are already employed by a rival store that didn’t get the tax cut. The first company will need to offer the workers higher wages to entice them away. The rival store will need to consider matching the wages in order to keep the workers.

In other words, even workers in companies that don’t receive the tax cut should see a wage rise.

Going through the AlphaBeta report

In 2015, the federal government cut the tax rate from 30% to 28.5% for businesses with less than A$2 million in revenue. Eligible businesses saved around A$2,940 on average because of the tax cut.

AlphaBeta used transaction data from 70,000 businesses to compare businesses just below the A$2 million threshold to companies that were just above it.

The analysis looked at the differences between the two groups of firms in terms of whether they hired new workers, invested in their businesses, increased worker wages, or kept some of the cash as a reserve.

AlphaBeta chalked any differences between companies that received the tax cut and those that didn’t to the company tax cuts.




Read more:
The full story on company tax cuts and your hip pocket


As reported in The Australian, AlphaBeta found that companies that received the tax cut increased their employee headcount by 2.6%. The companies that didn’t receive the cut increased employment by just 2.1%.

This difference turned out to be “statistically significant”, meaning it is very unlikely to be the result of random chance.

As the Sydney Morning Herald pointed out, AlphaBeta also concluded that 51% of the tax cut was kept as cash, 27% went towards new investment, but only 3% was paid to workers in higher wages.

In other words, wages increased by just A$1.44 per week. This is not only a small amount, it was also found to be not statistically significant.

Problematic methodology

The main issue with this study’s methodology is actually noted by AlphaBeta in the report itself (and echoed in the coverage by the ABC and Sydney Morning Herald).

The problem is that we cannot draw any conclusions about the effect of company tax cuts on jobs or wages by studying a bunch of firms that received them and another bunch that did not, even if the firms are only slightly different.

This is because, as noted above, the effect of company tax cuts on jobs and wages take place in the entire labour market. An increase in demand for labour flows through to all business, and therefore, so do higher wages.

So we should not expect to see wages rising only in those businesses that receive the tax cuts. The finding that an increase in wages is small and insignificant is exactly what we would expect to see from this study.

Another problem is that we do not know whether the characteristics of the companies in AlphaBeta’s sample. Were some industries with particularly pronounced employment or wage increases over represented in one group but not the other, for instance?

Studying the effect of company tax cuts on employment and wages also requires a longer time period – sometimes years – and careful control of other factors affecting jobs and wages in some firms relative to others.

Blind review:

The analysis in this review is generally fair and reaches a sound conclusion regarding the AlphaBeta report. However, the logic behind company tax cut raising wages is somewhat simplified.

A cut in company tax lowers the costs of production and can flow to labour, capital (including equipment and buildings) and consumers. Economics tells us that who actually benefits from a tax cut depends on what is more responsive to the tax – labour, capital or output.

The lower production costs from a company tax cut can lead to greater output and lower prices as consumers buy more goods and services. This depends, of course, on how responsive consumers are to changes in price.

In the short-run labour is more mobile than capital, which is usually regarded as fixed. Therefore, in the short-run most of the benefit is borne by owners of capital (the companies) in the form of higher after-tax profits.

However, over the longer term, companies invest their after-tax profits in the business. So most of the benefit of the tax cut goes to workers though higher wages as the increased “capital stock” (such as equipment) makes labour more productive.

The ConversationIt follows that there is no reason to expect a significant increase in wages over a period of one or two years (as the AlphaBeta report covers). Indeed, such a result would be somewhat surprising. – Phil Lewis

Ross Guest, Professor of Economics and National Senior Teaching Fellow, Griffith University

This article was originally published on The Conversation. Read the original article.

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Most of the benefits from the budget tax cuts will help the rich get richer


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Chris Samuel/Flickr, CC BY-SA

Robert Tanton, University of Canberra and Jinjing Li, University of Canberra

In the federal budget, Treasurer Scott Morrison promised tax cuts to all working Australians in the form of an offset and changes to tax income thresholds. But our analysis of Treasury data shows that while the government advertised these as payments to low and middle income Australians, most of the benefits would flow through to high income earners in future years.

If all of the stages of the tax plan passed parliament, there would be a sharp increase in benefits for people earning above A$180,000, due to the reduction of their marginal tax rate from 45% to 32.5%.

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Taxes in most countries are progressive. This means that the more you earn, the higher your marginal rate (the additional amount you pay for each dollar earned).

There are good reasons for this – progressive tax systems mean those on a lower income pay a lower average tax rate, while those on higher incomes pay a higher average tax rate. This reduces income inequality – as you earn more, for each dollar you earn, you will pay more in tax than someone on a lower income.

With the 2018-19 budget, the proposal is for a “simpler” tax system from 2024-25. This means a reduced number of tax brackets, and a lower rate of 32.5% to those earning between A$87,001 and A$200,000.

Treasurer Scott Morrison said following the budget:

Well, you’ve still got a progressive tax system. That hasn’t changed. In fact, the percentage of people at the end of this plan, who are on the top marginal tax rate is actually slightly higher than what it is today.

However this new tax system from 2024-25 is less progressive than the current system. It means higher income inequality – the rich get more of the tax cuts than the poor.

As part of the new proposal, low and middle income earners get a tax offset in 2018-19, with high income earners getting very little. This part of the plan is progressive – more money goes to lower income earners.

However, by 2024-25, the tax cuts means high income earners gain A$7,225 per year, while those earning A$50,000 to A$90,000 gain A$540 per year, and those earning A$30,000 gain A$200 per year.

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Of course, another factor of tax cuts is that they only benefit those who are employed. Tax cuts don’t benefit people like the unemployed, pensioners, students (usually young people) and those on disability support pensions.

The conversation Australians need to have is how we should be spending the revenue boost we are seeing over the next few years. We can either spend this windfall gain on benefits to high income earners, in the hope that this will flow through spending to everyone else; or maybe we should encourage young people into housing through an increase to the first home owners grant, or increased funding for our schools, universities and health system.

The ConversationWe’ve developed a budget calculator so you can see how your family is affected by the 2018 budget.

Robert Tanton, Professor, University of Canberra and Jinjing Li, Associate Professor, NATSEM, University of Canberra

This article was originally published on The Conversation. Read the original article.

Bill Shorten outbids Turnbull’s tax cut for lower and middle income earners



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Shorten pledged to give bigger income tax cuts for 10 million taxpayers.
Lukas Coch/AAP

Michelle Grattan, University of Canberra

Opposition leader Bill Shorten has launched a tax bidding war, promising to top the government’s tax relief for lower and middle income earners, as he prepares to fight a string of byelections in Labor seats.

The Labor alternative almost doubles the budget’s relief for these taxpayers, incorporating the early part of the government’s plan and then building on it.

Delivering his budget reply in Parliament on Thursday night, Shorten pledged to give bigger income tax cuts for 10 million taxpayers. Some four million would get A$398 a year more than the $530 under the government’s plan.

Labor’s “Working Australians Tax Refund”, would cost $5.8 billion more than the government’s plan over the forward estimates.

Labor’s alternative comes as debate intensifies about the latter stage of the government’s plan, when a flattening of the tax scale would give substantial benefit to high income earners.

The ALP hardened its position against that change as modelling cast doubt on its fairness. The opposition launched a Senate inquiry which will report mid June on the tax legislation, introduced into parliament on Wednesday.

The government says it will not split the bill, which it wants through before parliament rises for its winter break, but will be under pressure to do so including from the crossbench.

Under Shorten’s proposal, the ALP would support the government’s budget tax cut in 2018-19. Once in power, it would then deliver bigger tax cuts from July 1 2019, when it began the refund.

In Labor’s first budget “we will deliver a bigger better and fairer tax cut for 10 million working Australians. Almost double what the government offered on Tuesday”, Shorten told parliament.

The Labor plan would give all taxpayers earning under $125,000 a year a larger tax cut than they would get under the budget plan.

In a speech heavy on the theme of fairness, Shorten said: “At the next election there will be a very clear choice on tax. Ten million Australians will pay less tax under Labor”.

He also pitched his budget reply directly at the campaign for the byelections.




Read more:
View from The Hill: ‘Super Saturday’ voters get first say on tax


“This is my challenge to the Prime Minister. If you think that your budget is fair, if you think that your sneaky cuts can survive scrutiny, put it to the test. Put it to the test in Burnie, put it to the test in Fremantle and in Perth.

“I will put my better, fairer, bigger income tax cut against yours. I’ll put my plans to rescue hospitals and fund Medicare against your cuts. I’ll put my plans to properly fund schools against your cuts and I’ll put my plan to boost wages against your plan to cut penalty rates and I’ll put my plans for 100,000 TAFE places against your cuts to apprenticeships and training and I’ll fight for the ABC against your cuts.”

In the Labor model, a teacher earning $65,000 would get tax relief of $928 a year, $398 more than the $530 offered by the government.

A married couple, with one partner earning $90,000 and the other $50,000 would receive a tax cut of $1855, making them $796 a year better off under Labor than under the government.

Shorten said Labor could afford the tax cuts it proposed because it wasn’t giving $80 billion to big business and the big four banks. Also, it had earlier made hard choices on revenue measures.




Read more:
Politics podcast: Mathias Cormann and Jim Chalmers on Budget 2018


An ALP government could deliver “the winning trifecta” – “a genuine tax cut for middle and working class Australians; proper funding for schools, hospitals and the safety net; and paying back more of Australia’s national debt faster”.

Shorten said that the Liberals were proposing to radically rewrite the tax rules in their seven year plan. Research had revealed that $6 in every $10 would go to the wealthiest 20% of Australians, he said .

“Very quickly, this is starting to look like a Mates Rates tax plan”.

“And at a time of flat wages, rising inequality and a growing sense of unfairness in the community”.

Other initiatives he announced include:

· A plan for skills, TAFE and apprentices costing $473 million over the forward estimates.

· Abolition of the cap on university places, re-instating Labor’s demand driven system, at a cost of $140 million over the forward estimates.

· Reversing cuts to hospitals and establishing a Better Hospitals Fund, seeing an extra $2.8 billion flow to public hospitals. This would cost $764 million over the budget period.

· Invest $80 million to boost the number of eligible MRI machines and approve 20 new licences – which would mean 500,000 more scans funded by Medicare over the course of a first Labor budget.

The Conversation· Provide $25m to the Commonwealth Public Prosecutor to establish a Corporate Crime Taskforce. The Taskforce would deal with recommendations for criminal prosecution from the banking royal commission.

Michelle Grattan, Professorial Fellow, University of Canberra

This article was originally published on The Conversation. Read the original article.

Budget 2018: space agency details still scant – but GPS and satellite imagery funded


Anthony Wicht, University of Sydney

The Federal Government has announced $41 million of funding to kickstart the Australian space sector over the next four years.

The $41 million of funding is allocated across:

  • establishing the national space agency ($26 million over four years – $5.7 million in 2018/19, $9.8 million in 2019/20, $11.8 million in 2020/21 and $13.7 million in 2021/22)

  • international space investment ($15 million for grants over three years).

As expected, the funding establishes a national space agency, and ex-CSIRO head Dr Megan Clark is tipped to serve as the inaugural head.




Read more:
Infographic: Budget 2018 at a glance


The surprise in the budget is the around $260 million investment in applying satellite data to Australia – mostly in precise positioning but also in satellite imagery.

The applications of space technology cover:

  • $225 million for precise positioning technology that makes GPS signals accurate to centimetres, not metres, which unlocks efficiency and automation possibilities in agriculture, mining and transport

  • $36.9 million to improve “Digital Earth Australia”, a platform that assembles global satellite images of Australia in a user-friendly and publicly accessible way.

End to ambivalence

This budget marks the first time Australia has had an official space agency, and puts an end to decades of Australian ambivalence towards civilian space.


Timeline of key events in Australia’s space activities from 1957-2018: click on arrows at right and left to go back and forth.

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Adapted with permission from Kerrie Dougherty – this timeline first appeared in her review of Australia’s space activities in 2017.


The emphasis on industry shows the agency’s mission is to enable the growing Australian space sector to strut its stuff on a global stage.

The space industry is worth more than A$400 billion per year, and plays an increasingly vital link in civil and military activity.

The government’s concept of a space agency is as an economic and national security play – it is not aimed as a catch-up attempt to lavishly funded international peers like NASA.

With this budget, the government is trying to walk a fine line between enabling successful Australian businesses in the high-tech space game, and creating a sector dependent on government largesse.




Read more:
Space Agency for Australia: here’s why it’s important


Four key aims of the space agency

The $41 million over four years is about the minimum viable amount to start towards these goals. Sensibly spent, it is enough to achieve the core aims of an Australian agency.

International credibility for Australian space: Australian space businesses bidding for international work dread the question “why doesn’t Australia have an agency?” as it’s often the prelude to “without an agency it’s just too risky for us to work together”. A funded agency takes this objection off the table and levels the playing field.

Support for Australian business: Early-stage grants to help businesses prove concepts – for example, to build a launch-ready small satellite – are within the means of this budget. This will help Australian startups cross the “valley of death” from concept to export-ready, space-tested hardware.

Federal and international coordination: A mix of state and federal agencies have a hand in civilian space activities; a funded agency will help impose order domestically and serve as a focal point for international engagement with other space agencies.

Long term strategic planning for the sector: Space is a long lead-time business. The agency will be responsible for strategic planning for the sector. The money will give its plans clout and an ability to nudge startups and universities into growth areas through funding allocations.

This is not the sort of funding for an agency that will be hiring engineers and building its own spacecraft. Most of the money will be spent in partnerships with commercial companies and universities to help get new ideas and good companies off the ground.

Some will be spent with international agencies to give Australia a “seat at the table” and a chance to bid for international contracts. These partnerships are the likely role of the $15 million earmarked for space investment.

The budget is light on detail and there are many unanswered questions, including:

  • what areas will Australia focus on?

  • where will key parts of the agency be located?

  • what will the future of the agency look like after the four years?

The ConversationI look forward to seeing these details in the near future.

Anthony Wicht, Alliance 21 Fellow (Space) at the United States Studies Centre, University of Sydney

This article was originally published on The Conversation. Read the original article.

Federal Budget 2018: a state-by-state spending analysis



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Wes Mountain/The Conversation, CC BY-ND

Chris Salisbury, The University of Queensland; Anika Gauja, University of Sydney; David Hayward, RMIT University; Ian Cook, Murdoch University; Maria Yanotti, University of Tasmania; Rob Manwaring, Flinders University, and Rolf Gerritsen, Charles Darwin University

New South Wales and ACT

Anika Gauja, Associate Professor, Department of Government and International Relations, University of Sydney

With income tax cuts and a return to surplus earlier than expected, Treasurer Scott Morrison has certainly delivered a budget full of pre-election sweeteners. New South Wales itself isn’t a big winner, however, with only A$1.5 billion of the A$24 billion earmarked for infrastructure projects heading its way.

The projects that have been announced are strategically targeted: A$400 million will be spent on upgrading the Port Botany rail link, and A$50 million will go towards investigating the business case for the proposed Badgery’s Creek airport rail. The Pacific Highway will be upgraded with a new A$1 billion bypass at Coffs Harbour, bringing a windfall to the Nationals-held seat of Cowper. Scott Morrison’s own electorate will get A$25 million for a new monument commemorating the 250th anniversary of Captain Cook’s landing.

The “election budget” takes on even more significance in NSW, where voters will most likely go to the polls twice in the coming 12 months, with the next state election due in March 2019. By allocating only a modest proportion of infrastructure funding to NSW, the federal Coalition has made it hard for its NSW counterpart to capitalise on spending announcements during the state campaign.

If the state election is held before the next federal election, this might indicate confidence that Gladys Berejiklian’s government will be returned. Yet it might also signal a strategic focus away from NSW, where the state election could act as a buffer to absorb some of the disaffection that might otherwise be directed at the federal government.


Victoria

David Hayward, Professor of Public Policy and Director, VCOSS-RMIT Future Social Service Institute, RMIT University

Victoria is one of the big winners from the budget, through a mixture of luck and good political management.

First the luck. Mainly due to higher-than-expected population growth, Victoria will receive a bigger share of the national Goods and Services Tax pool, with revenue growing by a whopping A$1.4 billion, or almost 10% to A$17.3 billion. For the first time, Victoria’s share of GST revenues will be almost the same as its share of Australia’s population.

Also growing rapidly is the state’s share of federal infrastructure spending, which is tipped to rise from barely 8% to 15%. This is where the good political management part comes in. Over the last three years, Premier Daniel Andrews and Treasurer Tim Pallas have hit the airwaves to great effect, complaining bitterly about the state’s low levels of infrastructure investment under the Turnbull government.

With an election only six months away, the federal government has finally responded with a cool A$7.6 billion in total. Most of that investment will flow into a Melbourne Airport rail link (A$5 billion), a North East toll road that is yet to gain the support of the opposition (A$1.75 billion), and a rail link to Monash University’s Clayton Campus (A$500 million).

Much of this money won’t be seen for many years, with the spend next year being just A$900 million. The airport rail link is unlikely to start being built until 2026. There will also be some wrangling well before then, with the federal government determined to “equity” fund and the Victorian government looking for good old-fashioned capital grants.

Overall, though, this is a good-news budget for Victorians and the Victorian government. Just don’t expect opposition leader Matthew Guy to be smiling.


Western Australia

Ian Cook, Senior Lecturer in Australian Politics, Murdoch University

Today the budget confirmed that the West Australian government would get another A$2.8 billion to spend on transport infrastructure, and A$189 million to spend on hospitals. Low- to middle-income earners in WA, like everyone else in the country, can now expect around A$500 back by way of an increased tax rebate. West Australians were told last week that they would get around A$1 billion more through a revised GST carve-up.

The crucial question now is whether Western Australians will see the federal government’s budget and the GST boost as a visit from Santa or Scrooge.

They had been wondering where the money would come from to pay for infrastructure projects, especially Perth’s Metronet, promised by State Labor during the last election campaign. Now they know. Well, most of it. A couple of billion dollars more will be needed to fund the projects.

Western Australians were expecting 45 cents back for every dollar in GST raised in the state (up from 34c) and they were told they would in fact get 47c. But Victorians will get A$1.8 billion more in funding, and 98c in the dollar back from their GST.

Many people in the West will be wondering whether another A$10 a week in their pocket is all that much, especially given Perth’s notorious coffee prices.

In a pre-election budget, and in a state in which the Liberal vote is falling, the Santa or Scrooge question is important – and the answer is still not really clear.


Queensland

Chris Salisbury, Research Associate, University of Queensland

As expected, Scott Morrison’s third federal budget is big on pleasure and light on pain for Queenslanders. With a federal election due within a year, and given Queensland’s status as a battleground state, the temptation to splash the cash in the Sunshine State is strong.

Committing almost A$536 million (A$478 million of it new) over five years to improve the health of the Great Barrier Reef has been welcomed widely, although criticised in some conservation circles for supporting programs that don’t directly address the impacts of climate change.

The biggest smiles are reserved for proponents of infrastructure spending, especially to relieve commuter congestion, with A$5.2 billion newly earmarked for projects in Queensland.

This includes a A$1 billion boost for expanding the M1 motorway between Brisbane and the Gold Coast, A$170 million for the Amberley interchange section of the Cunningham Highway near Ipswich, and A$3.3 billion for much-needed upgrades to the Bruce Highway. There is also A$390 millon for the Sunshine Coast rail line duplication, a project that has long been advocated by local Liberal National Party MPs.

Significantly, but not surprisingly, there is no federal funding for the Cross River Rail project in Brisbane, a longstanding bone of contention between the Labor state government and the federal Coalition. Instead, Morrison has pledged A$300 million for the LNP-controlled Brisbane City Council’s Metro transport project.

Regional Queensland hasn’t been ignored, with A$176 million promised for the long-
proposed construction of Rockhampton’s Rookwood Weir, dependent on equivalent
state funding. Federal Nationals MPs hope this will boost Coalition support in marginal central Queensland seats, where the popularity of One Nation looms large.


Northern Territory

Rolf Gerritsen, Professorial Research Fellow, Northern Institute, Charles Darwin University

The federal budget’s impact in the Northern Territory was determined before the territory’s own budget was released last week.

Two days before the NT budget came out, Treasurer Scott Morrison gave the territory a A$259 million top-up to compensate for its reduced GST revenue share. (A sweetener, perhaps, for approving fracking?).

Morrison also promised a A$550 million contribution to the territory’s indigenous housing budget. The Country Liberal Party candidate for the Labor seat of Lingiari also announced A$250 million to extend the indigenous Ranger program. And the NT received $280 million in roads funding, as well.

The NT has three problems in coming years. Its public service expenditure is overly large and top-heavy, meaning its cost is rising faster than inflation. Secondly, its population is growing relatively slowly compared with the rest of Australia. Finally, the territory’s Aboriginal population is decreasing as a proportion of the national Indigenous population, as more people in cities on the east coast have begun identifying as Indigenous in recent censuses.

These factors affect the territory’s relativities as calculated by the Commonwealth Grants Commission. The NT’s relativities have declined from 5.4% to 4.6% in the coming year. This means the NT received A$540 million less in its general purpose grant than if the 2010 relativities settings were still in place.

That will likely only get worse as the territory’s debt burden is expected to become intolerable within two decades.


South Australia

Rob Manwaring, Senior Lecturer, Politics and Public Policy, Flinders University

The twin focus of the 2018 budget was tax relief and a strong focus on support for older people.

This will have a mixed impact on South Australia. SA has a disproportionately older population compared with the rest of the country. In theory, the state should then benefit from a range of Scott Morrison’s measures to increase aged care places and support for in-home care.

The tax relief measures might also well offer some respite to residents, given concerns about cost-of-living prices.

Yet, the budget does little to directly tackle economic inequality in the state. SA has the highest youth unemployment in the nation. The lack of an increase to the state’s Newstart allowance will not help young people out of work. The treasurer also didn’t flag any specific measures to tackle other youth issues, including pathways into the housing market. Nor are there specific stimulus job measures, meaning any positive job growth effects might well take some time to kick in.

For Steven Marshall’s freshly minted Liberal government, however, there are opportunities in the budget, especially the 21st Century medical plan, which aligns well with his rejuvenation agenda to create medical precincts.

The government will also receive money to fund specific infrastructure measures, such as the North-South roads corridor. Whether this spending is proportionate to SA’s size and needs, however, remains unclear. The Marshall government will still likely need to be proactive to bring additional funding to the state for other infrastructure projects, such as solving traffic hot spots in Adelaide.


Tasmania

Maria Yanotti, Lecturer of Economics and Finance Tasmanian School of Business & Economics, University of Tasmania

Cuts to GST revenue and personal income tax will have the biggest impact for Tasmanians. Changes to the GST carve-up could deliver a A$29 million drop in state government revenue, which will restrict state expenditure as GST payments account for 40% of the state’s budget.

Conversely, the cut to personal income tax will mean more disposable income for many in Tasmania, where annual average earnings are A$53,357, but the median annual income is just A$29,796.

The measures to improve longer life choices for older Australians, as well as the fully funded roll-out of the National Disability Insurance Scheme, will also be welcomed in Tasmania. People aged 65 years and over represent almost 20% of the state’s population, the aged care residential services industry employs 2.8% of Tasmanians (relative to 2% of all Australians), and the health care and social assistance sector is the state’s biggest employer.

Investment in infrastructure, defence equipment, space industry, and research and development are arguably the way to go into the future. Most Tasmanians will support the Great Barrier Reef package and some will indirectly benefit from the Melbourne airport train link. However, the federal budget is again offering little that’s truly new for Tasmania, with most of the funding going to pre-existing commitments.

Investment in agricultural competitiveness and access to export markets, accompanied by cuts in business taxes and business support, will stimulate growth of businesses in an economy that receives a large share of Commonwealth income. Meanwhile, levelling the playing field for small business will benefit many emerging boutique businesses in the state.

The ConversationTasmania’s population, tourism industry, private businesses and economy have all been growing, which is always good for the incumbent government. Launceston and Hobart are progressing with “City Deals”, and the University of Tasmania is “transforming”. However, this progress has been accompanied by strong house price growth and housing pressure, while educational levels are still low.

Chris Salisbury, Research Associate, The University of Queensland; Anika Gauja, Associate Professor, Department of Government and International Relations, University of Sydney; David Hayward, Professor of Public Policy and Acting Director, VCOSS-RMIT Future Social Service Institute, RMIT University; Ian Cook, Senior Lecturer of Australian Politics, Murdoch University; Maria Yanotti, Lecturer of Economics and Finance Tasmanian School of Business & Economics, University of Tasmania; Rob Manwaring, Senior Lecturer, Politics and Public Policy, Flinders University, and Rolf Gerritsen, Professorial Research Fellow, Northern Institute, Charles Darwin University

This article was originally published on The Conversation. Read the original article.

Budget policy check: Treasurer Scott Morrison’s speech


Charis Palmer, The Conversation

In our budget policy checks we look at the government’s justifications for policies in the budget and measure them against the evidence.

In this piece we look at Treasurer Scott Morrison’s speech.


Treasurer Scott Morrison has laid out his budget plan to further strengthen Australia’s economy, with a focus on constraining both spending and taxing.

As a Government we have put constraints on how much we spend and how much we tax, to grow our economy and responsibly repair the budget.

Real expenditure growth remains below 2%, the most restrained of any government in more than 50 years… We are also keeping taxes under our policy speed limit of 23.9% of GDP set out in our fiscal strategy.

Higher taxes to chase higher spending never ends well. Australians always end up paying for it one way or another.

Economist and tax expert John Freebairn says capping tax revenue is an arbitrary measure that overlooks the many potential reforms to the tax system that are revenue-neutral.

And, says Freebairn, the wide range in tax-to-GDP ratios around the world – from the United States at 25.9% to Denmark at 49.6% – shows that there is no one answer.

Identifying the right level to tax is obviously contentious, but an evidence-based approach would ensure that tax is at a point where the benefit to society of additional government spending no longer exceeds the distortion cost of raising the extra tax.

Tax relief is the biggest budget expense, costing the government A$13.4 billion over the forward estimates. This includes an immediate (albeit small) tax offset for all taxpayers, and for low- to middle-income earners, an increase in the upper threshold for three tax brackets.

Everyone pays the price of higher taxes. It weakens the economy and costs jobs.

Economist Saul Eslake says households have been spending less in the last five years because they have been paying more of their income in taxes.

And, he says, targeted personal income tax cuts, not funded by bigger deficits, could reduce the squeeze on households and make up for persistent low wages. The move will likely provide much more of a boost to the Australian economy than cutting company income tax.

Meanwhile, households are being promised good news about their electricity bills.

The National Energy Security Board estimates annual power bills will fall by A$400 on average for every Australian household from 2020, following the introduction of our national energy guarantee.

The government continues to argue the case for a conservative emissions reduction and renewable energy targets to prevent against higher electricity prices.

We will maintain our responsible and achievable emissions reduction target at 26-28%, and not the 45% demanded by the Opposition. That would only push electricity prices up.

And we will not adopt the 50% renewable energy target demanded by the Opposition that will also only put electricity prices up.

All energy sources and technologies should support themselves without taxpayer subsidies. The current subsidy scheme will be phased out from 2020.

Energy experts say increasing levels of renewable energy generation are just one of the many factors affecting retail electricity prices. Other factors include network costs, gas prices, changes in supply and demand dynamics and market competition issues.

Energy researcher Dylan McConnell says the assertion that high electricity prices are the consequence of renewable energy policies is incorrect.

The fifth pillar of Morrison’s budget plan is “ensuring that the government lives within its means”.

This is code for a continued crackdown on welfare cheats, but also includes ratcheting back research and development tax incentives, squeezing more tax out of multinationals, and finding a way to get revenue from the black economy.

A stronger economy keeps spending under control by getting Australians off welfare and into work. After record jobs growth, the proportion of working age Australians now dependent on welfare has fallen to 15.1% – the lowest level in over 25 years.

Public policy Professor Peter Whiteford says to understand changes in welfare spending we also need to factor in changes in the context in which welfare dollars are spent. For example, population growth, the impact of an ageing population and changes in government policies and welfare categories, will all influence this.

The ConversationWhiteford says a better way to look at it is to compare spending over time, expressed as a percentage of GDP.

Charis Palmer, Deputy Editor/Chief of Staff, The Conversation

This article was originally published on The Conversation. Read the original article.

Budget 2018: what’s in store for education



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Mai Lam/The Conversation NY-BD-CC, CC BY-SA

Andrew Norton, Grattan Institute and Glenn C. Savage, University of Western Australia

It wasn’t a big budget for education this year, with schools funding already set in the last Budget, and the funding freeze for universities announced in the Federal Government’s mid-year budget update in December.

But the National Schools Chaplaincy program will become permanent, with A$247 million set aside over four years from 2018-19.

And there is some good news for students in regional, rural and remote areas, with:

  • A$96.1 million over four years for young people in regional, rural and remote communities to transition to further education, training and employment

  • A$14 million over four years for 185 Commonwealth Supported Places annually for students commencing a bachelor degree at university through a Regional Study Hub

  • A$53.9 million over four years to improve regional students’ access to youth allowance, and

  • A$123.6 million over five years to regional universities for additional Commonwealth Supported Places from 2017-18.


Mai Lam/The Conversation, CC BY-ND

Schools and early education funding

Glenn Savage, Senior Lecturer in Education Policy and Sociology of Education at University of Western Australia

Despite ongoing political debates about school funding, most of the big news happened in last year’s budget, when the federal government formalised details associated with its Quality Schools reform package.

The package centres on a commitment to align school funding with the Schooling Resource Standard (SRS) recommended in the 2011 Gonski report into school funding.

To achieve this, the government plans to progressively raise funding levels for government schools from 17% to 20% of the SRS and for private schools from 76.8% to 80% of the SRS by 2027.

The government argues that this delivers an additional $24.5 billion for Australian schools over the decade, and says it will be up to states as to whether they wish to fund the remaining amounts so that all schools reach the full SRS.

The government also claims its reform package provides more consistent needs-based funding when compared to the so-called “special deals” established under the Labor Gillard government.

Labor doesn’t agree, suggesting the Coalition is shortchanging the nation to the tune of A$17 billion (the initial claim was $22 billion) when compared to promises made by the former Gillard Labor government.

Labor has promised, if re-elected, to return to the Gillard model.

This ensures funding will be a defining issue at the next federal election, especially given last week’s Gonski 2.0 report has made a suite of recommendations that the federal government supports and could very well require an additional injection of federal funds to implement.

But any potential changes hinge on whether the Coalition is actually in power when next year’s budget is delivered. And, if so, whether it has any luck pursuing the new Gonski agenda with states and territories.

Aside from these ongoing Gonski wars, this year’s budget contains a few additional highlights.

Most controversial is A$247 million over four years to extend the National School Chaplaincy Program, which will have a new anti-bullying focus. The program was first introduced under the former Howard Coalition, but was subsequently dumped by Labor. It’s strongly supported by conservative backbenchers.

Other notables in this year’s budget include:

• A$440 million to extend the National Partnership Agreement on universal access to early childhood education for a further year.

• A$154 million to promote active and healthy living. This includes A$83 million to improve existing community sport facilities and expand the Sporting Schools and Local Sporting Champions programs.

• A$11.8 million over three years to expand the Early Learning Languages Australia program to more preschools and trial the program in 2019 and 2020 from the first year of school through to year two in primary schools.

• A$6 million over two years (from 2017-18) to continue and update the communications campaign to increase public awareness of changes to the Quality Schools package (aka public relations to sell the government’s reform package).

• A$1.3 million per year until 2020-21 to continued funding the MoneySmart Teaching program, designed to improve financial literacy education in schools.

• A$134.3 million over four years to the Northern Territory as part of the children and schooling component of the National Partnership Agreement on Northern Territory Remote Aboriginal Investment.

Finally, the government has signalled its intention to continue exploring ways to deliver new and diverse pathways into the teaching profession, with the view to increasing the supply of quality teachers. This measure builds on previous work associated with the Teach for Australia program.

To pursue this aim, the government has suggested it will invite proposals in 2018 from providers to deliver alternative pathways into teaching.

Higher education and VET funding

Andrew Norton, Program Director of Higher Education at Grattan Institute


Mai Lam/The Conversation, CC BY-ND

VET

The long aftermath of the VET FEE-HELP loan fiasco is still being felt in the 2018-19 Budget. The government is planning to spend A$36.2M over fours years for a new IT system to ensure compliance in the replacement VET Student Loans program.

The VET Student Loans Ombudsman, given the task of receiving student complaints about vocational education lending, is to receive another A$1 million to help deal with the large numbers of people making complaints.


Mai Lam/The Conversation, CC BY-ND

Higher education

Higher education’s big Budget news came early, in the December 2017 Mid-Year Economic and Fiscal Outlook (MYEFO). It announced a two-year pause in tuition subsidy growth, and a range of reforms to the Higher Education Loan Program (HELP). There is no major change to these decisions in the 2018-19 Budget.

The pause in tuition subsidy growth has been implemented. It was done without going back to parliament using university funding agreements. For domestic bachelor degree places, universities will receive the same total amount that they received for 2017 for each of 2018 and 2019. Previously, there were “demand driven”, meaning that the Government would fund every student the universities enrolled.

This funding freeze means that universities won’t receive the value of inflation indexation to per student Commonwealth contributions, or Commonwealth contributions for any additional students they enrol above 2017 levels. But they will still receive indexed student contributions for all students they enrol.

The government has also used the funding agreements to reduce the number of Commonwealth-funded diploma, associate degree, and postgraduate coursework places. About 4,000 allocated places were abolished, but some of these weren’t being used anyway, so the practical effect may be limited.

Soon after these policies were announced, partial exceptions began with the University of Tasmania, the University of the Sunshine Coast and Southern Cross University all receiving additional places. These are confirmed in the Budget at a cost of A$124 million over five years.

In addition, the Budget has a new announcement of A$96 million over four years for nearly 700 extra student places for young people from regional areas. This is in response to the Independent Review into Regional, Rural and Remote Education.

Including the new places, funding on Commonwealth contributions through the Commonwealth Grant Scheme will be just over A$7 billion for 2018-2019.

From 2020, the government says it will resume funding increases based on population growth for universities that meet yet-to-be determined performance criteria. The Budget paper shows predicted spending of A$7.3 billion in 2020-21.

But numbers this far out are moot. With an election due in the next 12 months, and Labor indicating it will go back to demand driven funding, the funding freeze could be over by then. If the Coalition survives in office, it may also make substantial changes.

The other major MYEFO announcement was to the Higher Education Loan Program (HELP) loan scheme. Unlike changes to total tuition subsidy payments, these need legislating and the relevant bill is still before the Senate.

The most important proposed changes to HELP are the income thresholds determining whether, or how much, a HELP debtor needs to repay each year. If it passes, the bill would lower the initial repayment threshold from A$52,000 a year to A$45,000 a year. HELP debtors earning between A$45,000 and A$52,000 would repay 1% of their income. But some other thresholds are more generous than now, and many HELP debtors would end up paying less per year than they do now.

The government also originally proposed a A$100,000 lifetime cap on borrowing under HELP for all courses except medicine, dentistry and veterinary science, rather than just the full-fee student FEE-HELP scheme. The Budget confirms that the cap would be A$100,000 of HELP debt at any one time, allowing people who have paid off some debt to borrow again.

Whether HELP reforms eventually pass the Senate remains to be seen. In either case, it is fortunate for the higher education sector that they were not rejected prior to the May 2018 Budget. The freezing of the demand driven system showed the government was not bluffing when it said it needed to reduce higher education spending. Like the demand driven system, equity programs and some research programs are vulnerable to cuts the parliament cannot easily stop.

As it turns out, these programs survive in the Budget.

Research funding will receive a modest boost, with nearly A$400 million extra over five years for research infrastructure.

Although the higher education sector gets off lightly in the Budget compared to MYEFO, higher education providers will be hit with extra charges. The Government plans to charge them more for the services of the Tertiary Education Quality and Standards Agency.

The ConversationThe government also plans to charge higher education providers A$10 million a year to recover costs associated with HELP. We can only hope some of this is used to improve on the current very unsatisfactory public reporting of HELP’s finances.

Andrew Norton, Program Director, Higher Education, Grattan Institute and Glenn C. Savage, Senior Lecturer in Education Policy and Sociology of Education, and ARC DECRA Fellow (2016-19), University of Western Australia

This article was originally published on The Conversation. Read the original article.

Government pitches tax ‘relief’ in election-focused budget


Michelle Grattan, University of Canberra

Treasurer Scott Morrison has unveiled an income tax plan that will cost $140 billion over a decade and initially deliver tax relief of $530 a year for 4.4 million people earning between $48,000 and $90,000.

The three part plan is the centrepiece of Tuesday night’s budget, which also brings forward by a year the forecast return to surplus and the peak of Australia’s net debt.

The tax plan will be part of the government’s pitch for the election, due early next year, with Labor putting up a competing proposal.

The government also hopes that its income tax changes will soften Senate resistance to its legislation to cut the company tax rate for large companies. Morrison stressed that people on low to middle incomes would get a tax cut before big business.

Under the plan, the government says that 94% of taxpayers in 2024-25 will face a marginal rate of 32.5% or less. That compares with 63% if the system was unchanged.

Morrison said that in the first step, there would be relief for lower and middle income earners. The second step would protect taxpayers from bracket creep, while the third step would make the income tax system simpler and flatter.

Targeted relief will be given via an additional tax offset, paid when taxpayers receive their assessment, so that it is directed to lower and middle income earners.

In 2024-25 the system will be simplified by abolishing the 37% tax bracket entirely.

“Australians earning more than $41,000 will only pay 32.5 cents in the dollar all the way up to the top marginal tax rate threshold which will be adjusted to $200,000,” Morrison said.

“Under the Turnbull government’s personal tax plan most working Australians earning above $41,000 are likely to never face a higher marginal tax rate throughout their entire working life.” he said.

Morrison said the plan was “affordable”. The revenue impact over the forward estimates is $13.4 billion. The cost over a decade is $140 billion.

The budget forecasts a deficit for the current financial year of $18.2 billion, which Morrison said would be the best budget outcome since the Howard government’s last budget a decade ago.

The deficit is forecast to be $14.5 billion in 2018-19 before returning to balance with a wafer thin $2.2 billion surplus in 2019-20. Previously the budget had been predicted to return to a surplus in 2020-21. Over the medium term the surplus is predicted to rise to more than 1% of GDP.

Net debt will also peak earlier than predicted, at 18.6% of GDP in 2017-18, falling by about $30 billion over the forward estimates. Morrison told a news conference in the budget lock up “we have reached a turning point on debt”.

Morrison said in his budget speech: “The Australian economy is now pulling out of one of the toughest periods we have faced in generations.”

The economy is forecast to grow by 3% in 2018-19, with unemployment at 5.25% compared with 5.5% in this financial year. But the budget forecasts a slowing in what has been the surging growth in employment – from 2.75% in 2017-18 to 1.5% in 2018-19.

Real spending growth in the budget has been kept below 2%, which Morrison said was “the most restrained of any government in more than 50 years”. He emphasised that the government was “keeping taxes under our policy speed limit of 23.9% GDP”.

The main initiative on the spending side is a package for older Australians including an additional 14,000 high level home care places costing $1.6 billion over four years. There will also be extra money for aged care services in regional Australia and increased support for mental health services in aged care facilities.

The government is hoping to boost retirement incomes by making it easier for people to find their lost superannuation, and by abolishing exit fees. It will also crackdown on expensive insurance policies being sold to younger people.

The budget foreshadows raising $5.3 billion over the next four years from a crackdown on the black economy, including combatting “chop chop” tobacco.

Reaction

The budget was welcomed by business and attacked by Labor and the ACTU.

The opposition said the budget failed both the fairness test and the fiscal test.

Shadow treasurer Chris Bowen and finance spokesman Jim Chalmers said Labor would back the income tax measures that started on July 1 while having more to say later about how else Labor would help working people.

But they said that most of the tax package was “off in the never never – it’s a hoax for Mr Turnbull to tell people they have to vote for him at least two more times before they get tax relief in 2024”.

“Funding just 14,000 new in-home aged care packages over four years is another hoax, with funding being cut from residential aged care to pay for it,” they said in a statement.

Bowen told the ABC Labor would have budget repair as a central element of what it proposed. He also said the ALP would return the budget to surplus in the same year as the government.

The Business Council of Australia said this was “a strong and sensible budget focussed on growth and built overwhelmingly on the contribution of the business community”. The Australian Industry Group said it would “give business and the community confidence for the future”.

But the ACTU said the government “has chosen to do the bidding of big business, offshore investors and the already wealthy, and neglect the needs of working people”. The budget relied “on failed trickle-down economics to trick Australians into giving a failed Government another term in power”.

The Brotherhood of St Laurence said “the long forgotten people of this federal Budget – yet again – are Australians who rely on Newstart to make ends meet”.

The Institute of Public Affairs was scathing, saying the tax cuts were too timid and too slow.

“The so-called ‘tax speed limit’ is a smokescreen to hide the fact that this is the highest taxing, highest spending, and highest debt Budget in Australia’s history,” the IPA said.

The Greens said the budget showed that “large corporations and the super-rich have rigged the rules for themselves”.

The Conversation“Under the Government’s radical US-style tax plan, a hedge fund manager on $200,000 gets 10 times the tax cut as the person who trims the hedges around his mansion.”

Michelle Grattan, Professorial Fellow, University of Canberra

This article was originally published on The Conversation. Read the original article.

Prudent and steady, Budget 2018 paves the way for an election battle



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Tax cuts and tax reform have formed the centrepiece of the 2018 Budget.
Shutterstock

Tony Walker, La Trobe University

What a difference a year makes in budgetary politics. More to the point, what a difference the availability of better-than-anticipated tax receipts makes in framing an electioneering budget.

Burgeoning tax revenues – for now – have enabled Treasurer Scott Morrison to bring down a budget that will put the government in a better position to fight the next election than otherwise might have been the case.

This is a budget that, on the face of it, more or less accords with conservative principles of fiscal restraint and a commitment to reduce the tax burden.

This would not have been possible without a surge in government receipts. In that respect, the government has been lucky.

What Morrison has put together in this, his third budget, is the outline of a policy manifesto for the next election across a range of government activities, including its response to escalating energy prices, infrastructure bottlenecks and cost-of-living pressures.

Coalition members of parliament, including a conservative rump, should not be displeased with a document that will provide a reasonable platform for polls due by mid-2019.

In their pre-budget deliberations, Morrison and fellow members of the Expenditure Review Committee will have obsessed about four basic questions in framing the 2018-19 document.

The first is how to shore up support in the Coalition’s heartland seats to create a political Maginot line against an aggressive Labor challenge. The second is how to distribute largesse from booming tax receipts in a way that avoids criticism of fiscal irresponsibility. The third is how credible are the Treasurer’s claims of charting a course back to a budget surplus a year earlier than anticipated to enable paying down debt. And finally, how to differentiate the Coalition from Labor across a suite policies because in the end, elections are about product differentiation.

For the government, the question will be whether Morrison’s budgetary measures, including a redrawing of the tax scales, increased assistance to seniors, and a boost to infrastructure spending will prompt jaded voters to give the Coalition another look.

Can people be persuaded to look more critically at what Labor will have on offer, bearing in mind that it has already announced measures on cash-back franking credits, negative gearing and capital gains that will provide scope for it to match – or better – the Coalition’s tax cuts?

Those Coalition representatives sitting behind Morrison on the Treasury benches will be encouraged – not necessarily convinced – by his budget offerings.

A budget poll bounce may materialise, but it is hard to see the budget changing the political calculus in and of itself, in which Labor has maintained an advantage since the knife-edge election of 2016 .

In 2016, the Coalition prevailed by just one seat. This means that the forthcoming election, there is virtually no margin for error.

Tax reform stands as the centrepiece of this Morrison budget, with an immediate reduction in taxes for lower and middle-income earners, and a long overdue simplification of the tax scales over time.

Coalition supporters will be pleased a start has been made on more comprehensive tax reform in place of piecemeal measures adopted in recent times.

Whether lower and middle income taxpayers regard average tax reductions of $10 a week sufficient remains to be seen.

On the other hand, this is a budget that will provide challenges for Labor in framing a narrative that questions the government’s commitment to fairness in the allocation of resources.

In his press conference before his statement to parliament, Morrison was at pains to emphasise the budget’s “fairness”.

This is how a government – under pressure over perceptions it is indifferent to the challenges facing middle Australia – hopes the 2018 budget will be received.

Memories of an austerity 2014 budget, brought down by then Treasurer Joe Hockey and widely regarded as lacking fairness, have lingered.

In his three budgets, Morrison has steadily sought to reverse the negative impact of that 2014 budget on middle and lower-income earners.

Thanks to improving tax revenues, he appears to have succeeded to a significant extent in erasing lingering fallout.

What is striking about the 2018 budget is the marked difference in tone between what he had to say last year, and his relatively upbeat view of the way ahead this year.

In 2017, he reminded us that Australians had been obliged to “dig deep to keep the economy on track”, and he acknowledged “it’s been a fair while since hardworking Australians have had a decent pay rise”.

This year, he asserted the government had been making “real progress” in getting the budget “back on track”.

This includes a forecast return to a “modest surplus” in 2019-20, a year ahead of schedule, and projected surpluses of $11billion and $16.6 billion in 2020-21 and 2021-22.

He pledged that with the return to surplus, the government would begin paying down debt. He expects net debt to peak at 18.6% of GDP in 2017-18 and fall to 3.8% of GDP by 2028-29.

These projections could be said to be based on heroic assumptions about continued revenue growth over the next decade, and spending restraint. They need to be regarded sceptically.

A rejigging of the tax scales in favour of middle and lower income earners should help neutralise criticism the Coalition skews it policies towards higher income earners and the so-called “big end of town”.

Corporate tax cuts remain in the budget, but their passage against Senate opposition remains problematic.

Economist Chris Richardson gives Morrison credit for bringing down a budget that resisted the temptation to take advantage of a surge in tax receipts to splurge on election giveaways:

We had a dangerous combination of higher-than-anticipated tax receipts and a pending election, but despite this the Treasurer has been relatively restrained.

Richardson noted the budget was “tightly focused” on middle Australia, where the forthcoming election will be won and lost.

Economist Saul Eslake agrees that despite the “biggest movement” in revenues since the global financial crisis the government had been “reasonably prudent” in formulating an election-year budget.

Whether a public, which is seeing electricity prices going through the roof, and wage increase stuck in low gear, sees it this way remains to be seen.

The ConversationHowever, Morrison has done a serviceable job with a budget that needed to be both prudent and relatively appealing. This budget will define the political narrative for the forthcoming election. Battle is joined.

Tony Walker, Adjunct Professor, School of Communications, La Trobe University

This article was originally published on The Conversation. Read the original article.

View from The Hill: A tax cut that will ‘pay your rego’


Michelle Grattan, University of Canberra

The Turnbull government has produced a budget that it hopes it can sell as appealing for voters while appearing fiscally responsible.

Its income tax cuts target lower and middle earners in the early stages, delivering a benefit of up to $530 a year for them. If this seems modest, Scott Morrison was anxious to point out that it could pay your car rego, your quarterly electricity bill or half a dozen tanks of petrol.

In the longer run, the cost is not so modest – $140 billion over a decade. While some relief is delivered in the near term, it’s worth noting the structural change, scrapping the 37% bracket, is not timed until 2024-25 – which is beyond the next two elections.

Asked why the government didn’t prioritise attacking debt and deficit over tax relief, the Treasurer told journalists in the budget lock up that it was because “I respect taxpayers”. This was not “spending” – it was people being able to keep their own money, he said.

But in this budget, it was vital for the government that it be seen to be fair dinkum about fiscal repair. Thus it has brought the return to balance forward by a year – a surplus of $2.2 billion is forecast for 2019-20.
It might be minuscule but the surplus is there, in that year, to make a point, including to the ratings agencies. The budget also has net debt peaking in this financial year, a little sooner than previously predicted.

On the spending side, the budget is restrained, with initiatives targeted. It has an eye to older voters with several measures, including increasing the number of high level home care places by 14,000 at a cost of $1.6 billion over the budget period. This is perhaps less dramatic than it seems, because in part it represents a reconfiguration of aged care – more people want to stay in their own homes, rather than move to residential care facilities.

In seeking savings and revenue, a pre-election budget must tread carefully. There are not swingeing cuts. But there are some familiar and soft targets: “social welfare debt recovery”, “encouraging self-sufficiency for newly arrived migrants”, and “streamlining services for refugees”.

The revenue quest includes combatting illicit tobacco, in yet another crackdown on the black economy. Whether the estimated billions will all be collected remains to be seen.

There are forgotten people in this budget, those without electoral or other clout. Most notably, the Newstart benefit for the unemployed has yet again not been raised despite widespread recognition of its inadequacy.

While the budget will come in for its share of criticism, looked at overall it is designed not to offend an electorate that has already turned off the government.

Though people will be pleased to get a tax cut, they are unlikely to be grateful to the government for it. Rather, they will probably be more inclined to see it as simply their due.

But the budget does reinforce the fact that tax is to be a central battleground for the election.

Labor has plenty of money available for its competing tax package, especially in the longer term, because it has set itself against the government’s expensive tax cuts for big business, and so can use these funds for its tax and spending plans.

On income tax, the most intense competition will be around middle and lower earners, on whom the government has concentrated in the early stage of its package.

More generally, the government is pinning a good deal of hope on being able to brand its opponents as high taxers, with their crackdown on negative gearing, trusts and the like.

Hence Morrison’s tax “speed limit”, set at 23.9% of GDP. It’s not a number that is likely to have much resonance with the ordinary voter – nevertheless Labor will face a challenge to persuade people that the tax hikes it does propose are both fair and justified.

The ConversationHow effective this budget will be in helping shape the election debate won’t become clear until we have a detailed counterpoint to it, in the form of Labor’s pitch to the electorate.

Michelle Grattan, Professorial Fellow, University of Canberra

This article was originally published on The Conversation. Read the original article.