Despite the federal budget crashing to a deficit of $57.6 billion in 2009-10, Federal Treasurer Wayne Swan has managed to deliver a budget with something for everyone – unless you happen to be a high or middle-income earner.
After cutting almost $1 billion worth of programs designed to assist entrepreneurs in last year’s budget, the Rudd Government has come up with a range of initiatives to support the small business community, highlighted by a boost to the small business tax break from 30% to 50% for assets purchased by the end of 2009 (for businesses with turnovers of less than $2 million).
There is also $3.5 billion for innovation measures (although a key $1.4 billion R&D tax credit scheme has been delayed until 2010-11), $22 billion for infrastructure and an extension of the enlarged first home buyers grant for another three months.
But while Swan describes this a “nation-building budget, carefully crafted to bolster employment, construct a solid foundation for future growth and position us to capitalise on the global recovery when it comes,” the biggest initiative in the budget will aid a group that isn’t actually working.
The Government’s big centerpiece is a $30 a week increase in pension payments for seniors, carers and those with a disability. At $2.7 billion in 2009-10, this measure dwarfs every other measure by a factor of three and will cost more than $14 billion over the next four years.
To pay for this largesse, Labor has hit high and middle-income earners hard.
As was widely predicted, private health insurance rebates for individuals earning more than $75,001 (couples $150,001) have been cut, and Medicare surcharges boosted in measures that will save $1.9 billion over the next four years.
High income earners will also have family tax benefits and family payments slashed, saving the budget $1.2 billion over four years. As had been foreshadowed, a tax loophole used by high income earners with hobby farms and holiday homes has also been slashed.
But the biggest pain will be felt by superannuation account holders, with $1 billon of savings from super cutbacks in 2009-10.
The level that workers can make contributions to their superannuation at a concessional tax rate has been slashed from $50,000 a year to $25,000 a year, saving the Government $620 million in 2009-10 and $2.8 billion over the next four years.
Rules around the Government’s superannuation co-contribution scheme (which is designed for low income earners but is used by most couples) have also been changed, such that the Government will only match payments of $1000, down from $1500. While it is a relatively small change, it will affect a lot of workers, with $1.4 billion expected to be saved in the next four years.
While Swan dramatically describes the budget as being “forged in the fire of the most challenging global economic conditions since the Great Depression” there is also little doubt that it is the “very Labor budget” that he promised before budget day.
While on the one hand Swan is complaining about the $210 billion fall in tax receipts, he has still managed to deliver a wide variety of initiatives, mainly by slugging the better-off.
“I know some will be unhappy with the hard choice we’ve taken in the budget. Especially those we have asked to contribute more because they can afford to do so,” Swan says.
“But I am confident that most Australians will understand that the choices made are necessary and responsible. They are the only way to ensure the budget remains on a sustainable footing and national balance sheet remains strong.”
While it’s it true there are some ugly numbers in this budget (including a spike in net debt from zero to $188.2 billion in 2011-13 [13.8% of GDP]) it should also be pointed out that there are also some very optimistic predictions about the state of the Australia economy.
There will be pain in the short term. The Government is predicting economic growth will plunge from 0% in 2008-09 to -0.25% in 2009-10, with unemployment set to climb from 6% to 8.25% over the same period, with the jobless rate peaking at 8.5% in 2010-11.
But after that, Swan is forecasting the Australian economy will turn around reasonably quickly, with GDP growing by 2.25% in 2010-11 and by 4.5% in 2011-12 and 2012-13.
Economist John Quiggan describes these as very optimistic forecasts and says they are based on two quite big assumptions – first, that growth in advanced economies will be -3.25% in 2009-10 (Quiggan says it could be much worse) and second, that the Government’s stimulus packages will actually work.
If the assumptions are wrong, then Swan’s aim of having the budget deficit down to $28.2 billion by 2012-13 and in surplus by 2015-16 could be difficult to achieve.
Wayne Swan was always going to have an extremely tough job framing this recession budget, and his working title of “nation building for the recovery” is a worthy sentiment.
But despite the rhetoric and some positive measures for business assistance, infrastructure and innovation, the largest amount of money has gone to pensioners – a group that has a very limited ability to propel Australia out of the mire – at the expense of the high income earners who hold the key to recovery.
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
