Federal Treasurer Joe Hockey has delivered the Coalition’s first budget, with the message that the budget is building a stronger Australia. This budget is the most important for the long-term success and legacy of an Abbott Government and will give the Australian community its first substantial sense of the principles and character of the Prime Minister and his Cabinet.
A core commitment of the Coalition in the lead-up to last year’s election was to cut waste and return the budget to surplus. Of all their election commitments, restoring budget finances is undoubtedly the most difficult, particularly given the nature of some of the new policies of significant expenditure which the Coalition is introducing, including the paid parental leave scheme and the unfunded but bipartisan commitment to the National Disability Insurance Scheme.
The Government is selling this Budget as a ‘tough’ one with the pain of paying off debt to be shared by all. Headline measures include:
- The imposition of a deficit levy of 2% on incomes of $180,000 or more for the next three years
- The reintroduction of indexation to fuel excise
- More stringent means testing of family payments including Family Tax Benefit B being capped at $100,000 over earning and stopped when a child is 6 years
- The abolition of 70 Federal Government Agencies and 16,500 Commonwealth public servants and a temporary increase of the efficiency dividend by 0.25%
- $11.6 billion in Infrastructure funding
While some of these measures will not have an immediate impact on this year’s budget, the policies will contribute to the structural integrity of future budgets. The Government has incorporated some key recommendations of the National Commission of Audit into the 2014 Budget including the following proposals:
- The introduction of a co-payment of $7 for visiting a GP;
- The privatisation of Australian Hearing, Defence Housing Australia, the Royal Australian Mint and the registry arm of ASIC; and
- Increasing the pension age to 70 by 2035.
However the Government has not adopted many of the recommendations in the budget, either leaving them to be incorporated in the future or abandoned due to conflicting election promises or a judgement that the proposals are not in keeping with community expectations.
It should also be noted that the Government did not incorporate in this budget its policy to cut company tax by 1.5% or its paid parental leave program, rather it has placed these initiatives in contingency reserves.
Early commentary from political and economic commentators suggests that this Budget will be received with some commendation from the business and economic community. Significant opposition has already been voiced from social service advocates and the union movement. Labor, The Greens and Palmer United have all attacked the budget and will likely oppose many of its key initiatives, especially in Education and Health. In this area the States are also likely to attack this budget as more responsibility for funding initiatives will now fall on their shoulders.
This budget may be one that addresses significant structural challenges and will be looked back on favourably as one that changed the fiscal course of the nation.
The Bottom Line
|Surplus/deficit||-$18.8 b||-$49.9 b||-$29.8 b||-$17.1 b||-$10.6 b||-$2.8 b|
Departmental Spends and Saves
Whole of Government Savings
The Government’s general accrual expenses are expected to decrease by 2.3% in real terms in 2014-15, with expenses decreasing as compared to GSP from 26.2% in 2013-14 to 25.4% in 2014-15.
- Policy measures add $5.0 billion to tax receipts over the four years to 2016‑17.
- Over the four years to 2016-17, policy decisions have lowered tax receipts by $2.7 billion.
- Additionally, the Government has made policy decisions which will save $15.1 billion over the four years from 2013-14 to 2016-17
- Included in the budget is $27.5 million of “decisions taken but not yet announced” for the 2013-14 and $437.7 million in the 2014-15 fiscal year. In the coming months, expect announcements by the Coalition of a good news nature that have not been detailed in the Budget.
- The budget is on a clear track to surplus, with a small deficit of $2.8 billion in 2017‑18 and a surplus of well over 1 per cent of GDP by 2024-25.
Infrastructure and Regional Development
The Prime Minister has declared that he wishes to be remembered as the “Infrastructure Prime Minister”. To that end, the Treasurer has announced $50 billion will be spent on infrastructure by the end of the decade, the largest infrastructure spend on record. Combined with State and private-sector spending, Australia will benefit from an additional $125 billion investment nationwide.
From 1 August 2014, the Government will reintroduce the indexation of fuel excise. Every dollar raised from this increased fuel indexation will be linked to the Government’s road building budget, providing a stable fund for increased investment in Australian roads.
Asset Recycling Initiative
The budget provides $5 billion to establish the Asset Recycling Initiative to provide incentive payments to states and territories that sell assets and reinvest the sale proceeds in infrastructure. In order for a project to be eligible it must met the following criteria:
- Demonstrate a clear net positive benefit;
- Enhance the long-term productive capacity of the economy; and
- Where possible, provide for enhanced private sector investment in both the funding and financing of infrastructure.
The programme is for five years on a first-come, first-served basis. States will receive 15% of the price of the asset sold if all proceeds are allocated to new infrastructure investment. It is estimated the Initiative has the capacity to catalyse up to $40 billion in new infrastructure spending.
Infrastructure Growth Package
A major part of the Government’s infrastructure plan is its Infrastructure Growth Package, which will provide an additional $11.6 billion for infrastructure projects.
New South Wales
- The Government will provide a concessional loan of up to $2.0 billion to accelerate the delivery of Stage 2 of the WestConnex project in Sydney
- The Government will provide $2.9 billion over 10 years from 2014‑15 to 2023‑24 to deliver a Western Sydney Infrastructure Plan, by funding major road projects for the development of a second Sydney airport at Badgerys Creek and providing the transport infrastructure necessary to support a growing population in Western Sydney. The NSW Government’s funding contribution takes this to a $3.5 billion road programme
- The Government will provide $77.8 million over four years to establish a dedicated Western Sydney Infrastructure Unit in the Department of Infrastructure and Regional Development to progress the development of a second major airport at Badgerys Creek
- The 42km Toowoomba Second Range Crossing
- The North-South Corridor in Adelaide. Along with the Toowoomba Second Range Crossing, this project will source funding from the Government’s Infrastructure Investment Programme, which is receiving an additional $3.7 billion over five years from 2013-2014
- $1 billion will be spent on Melbourne’s East‑West Link Stage 2, which combines with a further $500 million being provided for the project from existing Infrastructure Investment Programme funding, for a total $1.5 billion investment to 2018‑19
- $866 million for the Perth Freight Link in Western Australia, taking the total Federal investment in the project to $925 million
Health and Sport
The most significant changes in the budget and those that are likely to provide the Government with significant electoral difficulties are contained in the Health portfolio, namely being the $7 co-payment for GP visits, $5 increase for PBS listed medicines and $50 billion in savings from winding back the previous government’s hospital funding agreements, which will place more pressure on the States to support Public Hospitals.
- The introduction of a $7 co-payment for GP consultations and out-of-hospital pathology and diagnostic imaging services – savings of $3.5 billion over five years
- The Government will use savings in the health Budget to fund creation of the world’s largest medical research endowment fund – $20 billion – helping to maintain its commitment not to cut health spending
- The Government will achieve savings of $1.3 billion over four years from 1 January 2015 by increasing the Pharmaceutical Benefits Scheme (PBS) co‑payments and safety net thresholds
- Co‑payments will increase for general patients by $5.00 (from $37.70 to $42.70) and for concessional patients by $0.80 (from $6.10 to $6.90) in 2015
- The Government will also contribute $200 million over 5 years for research to improve the treatment of dementia
- The Government will provide $378.7 million over five years for a number of new and amended listings on the Pharmaceutical Benefits Scheme and the Repatriation Pharmaceutical Benefits Scheme
- The Government will provide $8.1 million over five years for price amendments for certain medicines currently listed on the Pharmaceutical Benefits Scheme and the Repatriation Pharmaceutical Benefits Scheme.
New and amended listings since the Mid‑Year Economic and Fiscal Outlook 2013‑14 include:
- Nesina Met® (alogliptin and metformin) for the treatment of diabetes from 1 February 2014;
- Trajenta Duo® (linagliptin with metformin) and Kombiglyze® (saxagliptin with metformin) for the treatment of diabetes from 1 March 2014;
- Votrient® (pazopanib) for the treatment of soft tissue sarcoma from 1 March 2014;
- Actemera® (tocilizumab) for the treatment of juvenile idiopathic arthritis from 1 April 2014;
- Tobi®Podhaler® (tobramycin) for the treatment of bacterial lung infections in patients with cystic fibrosis from 1 April 2014;
- Clobex® (clobetasol) and Daivobet® (betamethasone calcipotriol) for the treatment of scalp psoriasis from 1 April 2014;
- Stribild® (tenofovir) for the treatment of HIV from 1 May 2014;
- Afinitor® (everolimus) for the treatment of advanced breast cancer from 1 June 2014;
- Ferinject® (ferric carboxymaltose) for the treatment of iron deficiency from 1 June 2014;
- Botox® (botulinum toxin) for the treatment of urinary incontinence from 1 November 2014.
Price amendments since the Mid‑Year Economic and Fiscal Outlook 2013‑14 include:
- Rabeprazole for the treatment of gastric reflux;
- Simvastatin for the treatment of high cholesterol;
- Methylprednisolone for the treatment of arthritis pain and inflammation; and
- Pindolol for the treatment of high blood pressure.
Defence has escaped much of the Government’s cuts, with the Coalition still committing in the medium term to return Defence spending to 2% of GDP. Efficiences delivered from the Defence portfolio will be reinvested back in the portfolio.
- $1.5 billion in Defence spending will be brought forward from 2017-18 to earlier years
- Privatisation of Defence Housing Australia
- The Government will provide $191.8 million over four years to re‑establish the Australian Defence Force Gap Year Programme, which gives school leavers the opportunity to experience the Australian Defence Force for one year
- The Government will provide $116.2 million over three years towards continuing Australia’s military contribution to international stabilisation and counter‑terrorism efforts in the Middle East
- The Government will provide $60.3 million over two years for Operation Resolute, the Australian Defence Force’s contribution to the whole‑of‑government effort to protect Australia’s borders and offshore maritime interests
- Overall, the Government will achieve savings of $1.2 billion over four years in the Defence portfolio through initiatives to increase
Social Services (including Human Services)
Social Services has been a significant focus of the Government in finding savings measures in this budget, focusing on Family Support Payments, Disability Pensions and the Newstart allowance. Many changes announced by the Government in this area will resonate well with its core constituency, but have already been targeted by the social welfare lobby and union movement.
- The Government will spend over $14 billion on social security and welfare in 2013-14
- The Government will provide $8.5 million over two years to conduct a partial tender for the Disability Management Services component of Disability Employment Services
- The Government will provide funding of $29.3 million over five years from 2013‑14 to introduce compulsory activities for Disability Support Pension recipients under 35 years of age with an assessed work capacity of eight hours or more a week who have a participation plan
- The Government will achieve savings of $1.2 billion over four years by reducing the Family Tax Benefit Part B primary earner income limit from $150,000 per annum to $100,000 per annum
- The Government will achieve savings of $377.7 million over four years by limiting the Family Tax Benefit Part A Large Family Supplement to families with four or more children from 1 July 2015
- The Government will achieve savings of $2.6 billion over four years by maintaining current Family Tax Benefit payment rates for two years from 1 July 2014
- From 1 July 2025, the Age Pension qualifying age will continue to rise by six months every two years, from the qualifying age of 67 years that will apply by that time, to gradually reach a qualifying age of 70 years by 1 July 2035
- The Government will achieve savings of $449.0 million over five years by indexing pension by the Consumer Price Index
- The Government will achieve savings of $508.1 million over five years by increasing the age of eligibility for Newstart Allowance and Sickness Allowance from 22 to 24 years of age, from 1 January 2015
- The Government will achieve savings of $235.2 million over three years by not proceeding with Round 5 of the National Rental Affordability Scheme
The Environment portfolio has seen significant increases through the establishment of the Emissions Reduction Fund in line with the Coalition’s pre-election commitments. These practical measures will replace the focus on Labor’s Carbon Tax approach to achieving reductions in emmissions.
- The Government will provide $2.55 billion to establish the Emissions Reduction Fund from 1 July 2014
- The Government will achieve savings of $21.7 million over four years through the amalgamation of the National Environmental Research Programme and the Australian Climate Change Science Programme to form a new National Environmental Science Programme
- Savings of $2.0 million over four years will result from the more efficient administration of the National Greenhouse and Energy Reporting Scheme
- The Office of Water Science research programme, will cease on 30 June 2016 saving $10 million
- The Government will achieve savings of $20.9 million over four years by closing the National Water Commission in December 2014
Immigration and Border Protection
Immigration an Border Protection has seen much less significant cost pressures in this budget than in previous ones with the Government’s border protection policies leading to less unauthorized maritime arrivals. This decline in arrivals is likely to lead to a $2.5 billion budget saving over five years. The hallmark of the Government’s policies in this area includes the creation of the Australian Border Force, which will merge the Customs and Immigration Departments at a cost of $480 million and result in 480 redundancies.
- The Government will provide $27.8 million in 2014‑15 to provide eligible asylum seekers with support while their immigration status is being resolved, and $3.7 million for international engagement activities to prevent and disrupt maritime people smuggling.
- At the same time, the Government will achieve savings of $38.4 million over five years by ceasing the Displaced Persons Programme from 2013‑14.
- The Government will provide $2.6 million in 2014‑15 to fund access to full‑time school education for all school aged Illegal Maritime Arrivals on Christmas Island.
- The size and composition of the 2014‑15 Migration Programme will be modified, saving $305.2 million. The Programme will have 190,000 places, comprised of: 128,550 Skilled Stream places, 60,885 Family Stream places and 565 Special Eligibility Stream places.
- The Government will achieve savings of $77.5 million over five years from 2013‑14 by renegotiating and consolidating offshore processing centre service provider contracts, and savings of $283.3 million over four years by consolidating the onshore immigration detention network by closing nine detention facilities.
Reforms to the tertiary education sector are a major hallmark of this Budget with the Treasurer expressing his desire for an Australian University to be in the top 20 in the world and many more to be in the top 100. While this may be the Government’s aim, the changes will be met with significant opposition from Labor and the Greens. Headline measures include:
- Allowing universities to set their own tuition fees from 2016. Existing students will not have their current arrangements affected until the end of 2020
- Requiring graduates to repay their loan from a lower income level closer to $50,000. This is estimated to achieve savings of $3.2 billion over four years from 2014-2015
- $1 from every $5 in additional tuition revenue will fund scholarships for students from disadvantaged background.
- For the first time, the Government will provide direct financial support to all students studying diplomas, advanced diplomas and associate degree courses, as well as those studying bachelor degrees, at all approved higher education institutions. This will see the Government supporting over 80,000 more students by 2018, at a cost of $820.4 million over three years
Despite being one of the fast growing cost centres in the budget, the Treasurer decided not to make any changes to the level or eligibility criterias for the Child Care rebate and Child Care benefit, which will cost $28.6 billion over the forward estimates.
- The Government will provide an additional $168.5 million over two years from 2013‑14 to the Community Support Programme and will amend the eligibility criteria. The Community Support Programme is designed to strengthen a service provider’s ability to set up and run a child care service in an area where the service might not otherwise be viable.
- The Government will provide an additional $35.3 million over two years from 2013‑14 and $19.0 million in 2017‑18 to help support the Jobs, Education and Training Child Care Fee Assistance
The Prime Minister has indicated that he wants to be a “Prime Minister for Indigenous Affairs”, but has also indicated that this won’t be achieved by replicating past policies of spending without responsibly. The Government’s key initiative in this budget has been the rationalization of indigenous affairs programs which will achieve savings of $534.4 million over five years. This rationalisation will see:
- 150 Indigenous programmes and activities consolidated into Indigenous Advancement Strategy comprised of five program focusing on Jobs, Land and the Economy; Children and Schooling; Safety and Wellbeing; Culture and Capability; and Remote Australia Strategies
- Indigenous Australians Health Programme to address priority health needs
- Cessation of the National Congress of Australia’s First Peoples from 1 July 2014 saving $15 million
- The Government will achieve savings of $508.1 million over five years by increasing the age of eligibility for Newstart Allowance and Sickness Allowance from 22 to 24 years of age, from 1 January 2015.
- The Government will provide an additional $304.1 million over four years from 2014‑15 to boost the wage subsidy for mature age job seekers, through a Restart Programme.
- From 1 July 2014, a payment of up to $10,000 will be available to employers who hire a mature age job seeker (including those on the Disability Support Pension) aged 50 years or over.
- The Government will achieve savings of $20.9 million over four years by applying a stronger deterrent to job seekers who refuse work without a good reason or persistently do not comply with their activity requirements.
- The Government will provide $14.9 million over two years to expand the Work for the Dole Programme
The most significant development for the agricultural industry remain the new business opportunities arising from the Government’s successful negotiation of new Free Trade Agreements with Japan and Korea. No doubt farmers will be significantly effected by the indexation of the fuel levy and no assistance to counter this has been included in the budget.
- There will be an additional $100.0 million provided over four years to fund agricultural research, and an additional $20.0 million provided to strengthen Australia’s biosecurity and quarantine arrangements.
- The Government will provide $15.0 million over four years to support small exporters in sectors where there are specific export certification registration charges, and $9.0 million to support a more competitive and sustainable fisheries sector.
- Finally, the Government will provide $320.0 million in drought-relief measures for affected farmers.
The Government has yet again targeted industry policy to demonstrate that the “age of entitlement is over” and The vast majority of Government policy in the Industry sector sees the government saving more than $845 million from the abolition of industry assistance programmes. This is in line with the government keeping its election commitment of reducing waste, red-tape and getting the budget back on track. In line with this, the following has been announced:
- The Government will achieve savings of $4.4 million over five years by not proceeding with funding for four grant programmes, one being: eHealth Summit and Implementation of Clinical Trial Functionality into Jurisdictional eHealth Systems.
- The Government will refocus primary care funding by replacing Medicare Locals with Primary Health Networks from 1 July 2015. The Primary Health Networks will establish Clinical Councils, with a significant GP presence, and local Consumer Advisory Committees that are aligned to Local Hospital Networks, to ensure primary health care and acute care sectors work together to improve patient care.
- The Government will provide $9.9 million over five years from 2014-15 (including $0.3 million in 2018-19) to develop a nationally consistent approach to the way clinical research trials are overseen and conducted and to streamline and simplify National Health and Medical Research Council grant application and assessment processes.
- The Government will achieve savings of $142.0 million over five years by abolishing Health Workforce Australia and consolidating its functions into the Department of Health. Savings will be achieved through administrative efficiencies, ceasing the planned expansion of the Clinical Training Funding Programme which is currently managed by Health Workforce Australia, and redirecting uncommitted funds in the Health Workforce Fund.
- The Government will achieve savings of $11.3 million over two years by discontinuing the Community Innovation through Collaboration Programme.
- The Government will also achieve savings of $845.6 million over five years by ceasing programmes from 1 January 2015 such as: Innovation Investment Fund; Industry Innovation Councils; and Industry Innovation Precincts.
- Consistent with the Government’s commitment to cut the company tax rate from 1 July 2015, the Government will preserve the relative value of the Research and Development Tax Incentive by reducing the rates of the refundable and non-refundable offsets by 1.5 percentage points, effective from 1 July 2014. This measure is estimated to provide a gain to the Budget of $620.0 million in fiscal balance terms over the forward estimates period. In underlying cash terms, the gain to the Budget is $550.0 million over the forward estimates period.
Australian Renewable Energy Agency
- The Government will achieve savings of $1.3 billion over five years from 2017‑18 by abolishing the Australian Renewable Energy Agency and repealing the Australian Renewable Energy Agency Act 2011.
- Funding of $1.0 billion over eight years will remain available to support existing priority projects.
The Establishment of the Entrepreneurs’ Infrastructure Programme
- The Government will provide $484.2 million over five years to establish the Entrepreneurs’ Infrastructure Programme.
- The programme will focus on supporting the commercialisation of good ideas, job creation and lifting the capability of small business, the provision of market and industry information, and the facilitation of access to business management advice and skills from experienced private sector providers and researchers.
The Government will also achieve savings of $845.6 million over five years by ceasing the following programmes from 1 January 2015:
- Australian Industry Participation;
- Commercialisation Australia;
- Enterprise Solutions;
- Innovation Investment Fund;
- Industry Innovation Councils;
- Enterprise Connect;
- Industry Innovation Precincts; and
- Textile, Clothing and Footwear Small Business and Building Innovative Capability.
- The Government will achieve further savings of $124.7 million over five years by reducing funding for the Clean Technology (Investment and Innovation) programmes and Cooperative Research Centres.
- The savings from this measure will be redirected by the Government to repair the Budget and fund policy priorities.
Ethanol Production Grants Programme
- The Government will achieve net savings of $120.0 million over six years from 2015‑16 by ceasing the Ethanol Production Grants Programme on 30 June 2015.
- The fuel excise on domestically produced ethanol will be reduced to zero from 1 July 2015 and then increased by 2.5 cents per litre per year for five years from 1 July 2016 until it reaches 12.5 cents per litre, which represents 50 per cent of the energy content equivalent rate.
- The excise equivalent customs duty for ethanol will be retained at 38.143 cents per litre.
National Low Emissions Coal Initiative
- The Government will achieve savings of $16.8 million over two years from 2013‑14 from the National Low Emissions Coal Initiative.
- Funding of $96.6 million over four years will remain available to support the development and deployment of technologies that aim to reduce emissions from coal use.
National Radioactive Waste Management
- The Government will provide $22.6 million over three years from 2014‑15 to develop detailed design options for a national facility to address Australia’s future radioactive waste management requirements as set out in the National Radioactive Waste Management Act 2012.
Emissions Reduction Fund
- The Government will provide $2.55 billion to establish the Emissions Reduction Fund
1,500 Gigalitre Cap on Water Buybacks
- The Government will introduce a cap of 1,500 gigalitres on the volume of Commonwealth water buybacks in the Murray‑Darling Basin.This measure delivers on the Government’s election commitment.
Coastal River Recovery Initiatives
- The Government will provide $9.3 million over four years to improve the environmental health of targeted urban and peri‑urban coastal waterways.
Office of Water Science research programme
- The Government will achieve savings of $10.0 million over five years from the Office of Water Science research programme, with the programme terminating on 30 June 2016.
Smaller Government — National Water Commission
- The Government will achieve savings of $20.9 million over four years by closing the National Water Commission in December 2014
- Following on from the ABC and SBS Efficiency Study, the Government will reduce base funding of the ABC and SBS by one percent over four years, achieving savings of $43.5 million.
- A new $10 million initiative will improve the safety of children using the internet.
- $100.0 million will be provided over four years to improve coverage and competition in the provision of mobile and wireless broadband services in regional areas of Australia.
- The rollout of the National Broadband Network will prioritise regions with poor existing internet services, before reaching the rest of Australia.
- The Government will provide $484.2 million over five years from 2013‑14 to establish the Entrepreneurs’ Infrastructure Programme to implement its new approach to industry policy.
- $2.8 million (including $0.5 million capital funding) over four years to assist small businesses to access the Commonwealth procurement market.
- $1.4 million over four years to the Australian Competition and Consumer Commission to support the extension of unfair contract term provisions available to consumers under the Australian Consumer Law to small businesses.
Foreign Affairs and Trade
- The Government will achieve savings of $196.8 million over nine years by terminating the Australia Network contract with the Australian Broadcasting Corporation
- The Government will provide $51.5 million (including $2.0 million in capital funding) to continue Australia’s diplomatic engagement in Afghanistan
- Government will reduce growth in the foreign aid budget to save $7.5 billion over the next 5 years
- The Government will provide $53.3 million over two years (including $5.3 million in capital funding) to establish a Royal Commission into Trade Union Governance and Corruption
The 2014-15 Budget papers can be accessed at www.budget.gov.au