Canberra avoids Budget surprises as elections loom

Federal Treasurer Scott Morrison unveiled yesterday what he called a Budget for ''extraordinary times''.
Federal Treasurer Scott Morrison unveiled yesterday what he called a Budget for ''extraordinary times''. PHOTO: EUROPEAN PRESSPHOTO AGENCY

'Jobs and growth' focus, with few austerity measures or sweeteners

Australia's ruling conservative coalition yesterday delivered a risk-free Budget to try to steer the nation through "extraordinary times" as it sought to draw campaign battle lines ahead of looming elections. 

Revealing plans to crack down on multinational tax avoidance and to reduce domestic business taxes, Federal Treasurer Scott Morrison insisted the Budget was designed to promote "jobs and growth". 

He said the turbulent global outlook and lower commodity prices posed challenges to Australia's growth and required a boost for non-mining businesses.  "Australians have clearly said we must have an economic plan to make this economic transition a success," he told Parliament. "This cannot be just another Budget, because these are extraordinary times."

Perhaps the most extraordinary feature of the Budget was that it was delivered - apparently for the first time in the nation's history - just days before Prime Minister Malcolm Turnbull is expected to call an election, likely to be held on July 2.

Mr Turnbull, a popular former investment banker, ousted Mr Tony Abbott as leader last September, but his approval ratings have slipped and the ruling coalition has fallen slightly behind the main opposition Labor Party in recent opinion polls.

  • Australia's Budget highlights

  • •Budget deficit to be A$39.9 billion (S$41 billion) this year, falling to A$37.1 billion next year.

    •No surplus is forecast until 2020/21.

    •Gross domestic product to increase by 2.5 per cent next year, then 3 per cent in 2017-18.

    •Additional spending on infrastructure and transport, including on roads, rail and freight links and a new airport for Sydney.

    •Defence spending will increase to A$32 billion next year and make up 2 per cent of GDP by 2020. The spending includes plans for new navy vessels and submarines and an extra A$335 million for Australia's military effort to combat Islamic State in Iraq and Syria in the Middle East.

    •State and territory hospitals to receive A$2.9 billion in additional funding between 2017 and 2020.

    •Unemployment to dip this year from  5.7 per cent to  5.5 per cent.

    •A 1,000-member taskforce will target tax avoidance by multinationals, which will face a 40 per cent penalty tax rate, up from the standard 30 per cent rate.

    • Tax cuts for businesses with turnover below A$10 million a year, which will pay a rate of 27.5 per cent.

    •Small income tax cuts for those earning more than A$80,000, benefiting the top 20 per cent of earners.

    •The public service faces more job cuts as the government seeks to drive efficiency.

    •Welfare recipients will face greater scrutiny before receiving payments.

The Budget, which was largely seen as a pre-election pitch to voters, avoided surprises or hard-hitting austerity measures. It won praise for avoiding standard pre-election big- spending sweeteners for voters but was criticised for failing to substantially rein in spending. 

"This Budget may once again disappoint those hoping for more radical change," political commentator Laura Tingle wrote in The Australian Financial Review yesterday. 

"But it is a Budget that battens down the hatches for the coming election windstorm... It is a Budget about stabilising the nation's finances, not radically changing them."

The Budget and the elections come amid uncertain times for Australia's economic future. The nation has enjoyed over two decades of uninterrupted economic growth, but the fading of a decade-long China-fuelled mining boom has led to sluggish growth in recent years. 

Just hours before the Budget was delivered, Australia's central bank revealed it was cutting interest rates to a record low of 1.75 per cent, partly because of unusually low inflation and global uncertainty.

The Budget deficit for next year was estimated at A$37.1 billion (S$37.7 billion), slightly less than this year's A$39.9 billion. But this is forecast to drop to A$6 billion by 2020. Economic growth was forecast to be 2.5 per cent next year, which is less than anticipated, but will then increase to 3 per cent annually in the following three years. 

The big winners included small business owners, whose tax rate  will drop from 30 per cent to 27.5 per cent next year. There was also a small tax cut for those earning above A$80,000 a year, who will receive at most an extra A$6 a week.

The big losers included high-income earners, who will lose some of the concessions they receive for voluntarily putting extra money into their retirement funds. Other losers included smokers, who will face a hefty 12.5 per cent tax hike each year from 2017 to 2020. The measure will lift the price of a packet of cigarettes to about A$45 by 2020.

The Budget also includes a plan to target multinational companies with a so-called British-style "Google tax" to prevent firms from shifting profits offshore. 

From next year, multinationals will face a penalty of 40 per cent of profits they seek to shift, rather than the standard 30 per cent rate. 

"Everyone has to pay their fair share of tax," Mr Morrison told Parliament.

Business groups welcomed the Budget as positive and sustainable.

Political commentators were more circumspect, praising the government for avoiding excessive cash handouts but warning that it lacked a long-term ambition and may not shift votes.

Commentator Dennis Shanahan wrote in The Australian: "The danger… is that (the Budget) will be seen to be too modest, too middling and insufficient. People will feel there is nothing in the Budget for them."

A version of this article appeared in the print edition of The Straits Times on May 04, 2016, with the headline 'Canberra avoids Budget surprises as elections loom'. Print Edition | Subscribe