Last night Federal Treasurer Wayne Swan delivered Labor’s sixth Budget.
This time last year, the Treasurer promised Australians four years of surpluses. Instead, the Budget will remain in the red for at least two more years.
We already knew that a combination of a sustained high Australian dollar and falling commodity prices had led to weaker profits and lower than forecast government revenues. The Treasurer has finally revealed how savage the hit to receipts is – $18 billion in the coming year and $60 billion over the forward estimates is forecasted.
Labor has pitched it pathway back to surplus as a choice of priorities, through what it calls responsible savings.
With voters going to the polls in exactly four months, there are few pre-election sweeteners. More on this later. Instead Labor has framed its re-election around a ‘stronger, smarter and fairer Australia’ supported by two big ticket items – a $14.3 billion investment to deliver the national disability insurance scheme (NDIS) and $9.8 billion in new school funding as part of the government’s response to the Gonski review. Both are hoped to appeal to the traditional Labor base, which has all but deserted the Government.
Underpinning these funding commitments over the next decade, Labor has sought savings of $43 billion over the forward estimates, including:
- Scrapping the Baby bonus, instead increasing payments under Family Tax Benefit A for eligible families when they have a new baby. However the eligibility requirements will be tightened;
- Increasing the Medicare safety net from $1,200 to $2,000 from 1 January 2015;
- Phasing out the net medical expenses tax offset;
- Tightening corporate tax loopholes that currently allow large transnational companies to shift debts and profits among their subsidiaries to minimise their tax obligations;
- Reducing the amount of exploration tax deductions that mining companies can claim upfront.
An increase in the Medicare Levy of 0.5% from next July to support the NDIS had already been announced, while tax cuts slated for 2015 to compensate for the carbon price have been deferred indefinitely.
In a pitch to marginal voters in outer metropolitan areas, investments totalling $24 billion have been announced for both urban road and rail infrastructure.
In a bid to ease traffic congestion in Sydney, funding for the M4 extension and M5 duplication, as well as the missing link between the F3-M2 has been announced. Similar projects in other capitals will also be funded, along with regional projects such as the ongoing Pacific Highway works. To deliver the projects, the Government says it will partner with the private sector and the State Governments, though the announcements may be leveraged in order to drive wedges between the federal Coalition and the Liberal Governments in Queensland, Victoria and in the west.
With economic management likely to remain a key vote driver at the September poll, the challenge for the Government will be convincing a sceptical electorate to back its approach.
Given repeated assurances by the Government last year that successive, strengthening surpluses would underpin jobs and growth, its rhetoric that its ‘responsible savings’ will now support those same goals only serves to erode its credibility further.
The Bottom Line
2012-13 2013-14 2014-15 2015-16 2016-17
(estimate) (estimate) (estimate) (projection) (projection)
Surplus/deficit -$19.4b -$18.0b -$10.9 $0.8b $6.6b
% of GDP -1.3 -1.1 -0.6 0.0 0.4
Economic Growth 3.00% 2.75% 3.00% 3.00% 3.00%
Employment 1.25% 1.25% 1.50% 1.50% 1.50%
Unemployment 5.50% 5.75% 5.75% 5.00% 5.00%
Inflation 2.50% 2.25% 2.25% 2.50% 2.50%
Departmental Spends and Saves
Whole of Government Savings
- Included in the budget is $463.9 million of ‘decisions taken but not yet announced” for the 2012-13 fiscal year. In the coming months, expect to announcements by Labor of ‘pre-election’ sweeteners that have not been detailed in the Budget.
- The Government will save $68.4 million through expanding the online procurement system to support agencies’ online tendering and purchasing activities.
- The Government will save $148.4 million through reducing staff numbers in the Senior Executive Service and employment at Executive Levels 1 and 2.
- Eligible business entities will now be able to claim the Research and Development (R&D) 45 per cent refundable tax offset on a quarterly basis from 2014. This will improve cash flow and encourage small business to invest in R&D activities.
Agriculture, Fisheries and Forestry
- The Government has introduced a new Farm Finance package which includes up to $420 million over two years in concessional loans to primary producers, changes to the Farm Management Deposit scheme and financial counselling support.
- A new Farm Household Allowance (FHA) to replace Exceptional Circumstances Relief Payment and the Transitional Farm Family Payment under the National Drought Program Reform commencing from 1 July 2014. The FHA will be available to eligible farm families in periods of hardship regardless of the source of that hardship.
- An additional $94.5 million over five years to implement the Tasmanian Forests Agreement (partially funded through redirected funding from the Biodiversity Fund and Caring for Our Country).
Arts and Sport
- Funding has been provided to implement Labor’s Creative Australia arts policy including $75.3 million to the Australia Council for the Arts and $20 million to support the film industry.
- The Australian Sports Anti Doping Authority has received an additional $1.8 million to increase its investigative activities.
Broadband, Communication and Digital Economy
- Television licensing fees have been halved at a cost to revenue of $615 million
- Funding will be provided to the ABC and SBS to increase terrestrial coverage of digital TV in 39 regional areas, though the quantum has not been disclosed
- $26.6 million has been committed for restacking digital televisions services to vacate digital spectrum
- Funding to SBS over the forward estimates will be increased by $30 million
- $4.9 million of additional funding has been set aside for an NBN communications campaign
- In response to the DLA Piper Report of the Review of allegations of sexual and other abuse in Defence, $84 million over two years will be provided for reparation payments and related expenses and an independent Taskforce will created at a cost of $37.1 million.
- The Government will provide $585.7 million over four years for the net additional cost of continuing Operation Slipper, Australia’s contribution to international stabilisation and counter‑terrorism efforts in Afghanistan and the Middle East Area of Operations. This includes $192.0 million for the transition and redeployment of ADF personnel and equipment from Uruzgan Province. Approximately 1,000 ADF personnel will return to Australia in late 2013, following the closure of Multi‑National Base Tarin Kot.
- The Government will provide $39.4 million for the net additional cost of the security transition of Operation Astute, Australia’s military contribution to maintaining stability in East Timor through the International Stabilisation Force (ISF).
- Capability activities given further consideration this year include Australia’s Air Combat Capability, P-8A Poseidon maritime patrol aircraft, land mobility, future armoured vehicles, afloat support vessels, communications and interoperability capabilities, intelligence and surveillance systems, electronic warfare, space and cyber. The total amount of these projects proposed value up to $20 billion.
- $353 million in 2013/2014 and $9.8 billion over six years will be dedicated to implementing a new needs-based funding model for schools
- $114.4 million over four years will support students with disabilities
- $71.8 million over six years will support new school funding arrangements
- $660.1 million has been allocated to continue the National Partnership Agreement on Early Childhood Education
- $300 million over two years has been set aside to support eligible long day care centres attract and retain qualified professionals
- The Government will save $228.3 million over four years by removing 10% up-front HECS discounts and 5% discounts on voluntary contributions
- An efficiency dividend on Higher Education grants will be imposed to save $902.7 million over four years
- The Government will contribute $96.7 million over five years to increase commonwealth supported places in post-graduate and sub-bachelor courses by 1650
- Student Start-up Scholarships will be converted to income contingent loan programs to save $1.186 billion over five years
Employment and Workplace Relations
- The Government will save $105.8 million over 4 years by pausing indexation of the Child Care Rebate $7500 annual cap.
- The Office of the Fair Work Building Industry Inspectorate has received a funding cut on ‘efficiency’ grounds of $24 million over four years.
- Eligible income support recipients (Newstart Allowance and others) will be able to earn $100 per fortnight instead of $62 without losing benefits from 20 March 2014 at a cost of $258 million over four years, providing an incentive to return to paid work.
- $21.4 million for Fair Work Australia to resolve complaints of workplace bullying and make orders to prevent it in the future.
Environment, Water and Climate Change
For more information about carbon pricing and industry assistance measures, including changes to the Clean Energy Future package, see Industry, Innovation, Science and Research below.
- As a result of falls in the forecast carbon price the Government has axed or reduced compensation and a number of programs across Government designed to mitigate its impact on individuals and business.
- A reduction in funding of $9.7 million due to the deferral of amendments to the Environment Protection and Biodiversity Conservation Act 1999 and a saving of $17.8 million as a result of a delay in introducing cost-recovery arrangements under the Act.
- The Government will amend the EPBC Act to include coal seam gas and large coal mining development likely to have an impact on a large water source at a cost of $38.5 million.
- $3.5 billion to implement the Murray Darling Basin Plan including initiatives to increase water available for productive use and for the environment
Families & Community Services
- $14.3 billion of funding will be dedicated to establish DisabilityCare with only $75.2 million additional funding to 2013-14. DisabilityCare will be supported by a 0.5% increase in the Medicare Levy that is budgeted to raise $20.4 billion between 2014-15 and 2018-19
- Income thresholds and supplement amounts for Family Tax Benefit Part A and Part B will be maintained until 1 July 2017 to save $1.214 billion
- $2.517 billion will be saved over four years by not proceeding with the Government’s plan to increase Family Tax Benefit Part A
- The baby bonus will be abolished to save $1.029 billion over the next four years
- On 1 March 2014 the Government will increase Family Tax Benefit Part A payments by $2,000 on the birth of a first child and $1000 for subsequent children, parents who take up paid parental leave will not be eligible for these increases
- Up to $159 million has been committed to a one year transitional National Partnership Agreement on Homelessness, in addition to the provision of services it will also establish a capital fund and continue the longitudinal study, Journey Home
Foreign Affairs, Trade and Aid
- $7.8 million over five years for an Asian Century Business Engagement Grants program to improve access for Australian business in emerging economic centres in Asia.
- A saving of $88.4 million over four years by reducing staff in Canberra and through improved management of embassies.
- A saving of $1.9 billion over four years by deferring by one year the target date to increase Australia’s aid spending to 0.5% of Gross National Income.
Health & Ageing
- An additional $4.5 million will be provided for the PBS Expanded and Accelerated Price Reform
- The Government has provided undisclosed funding to mitigate and respond to the risk of legal challenges to the PBS
- $686.7 million has been set aside for approved new and amended listings on the PBS over five years
- Savings of $784 million have been identified by realigning the indexation of Medicare Benefits Schedule fees to 1 July each year and removing double billing for GP chronic disease management
- $189.7 million over four years of additional funding will be directed to various cancer programs including BreastScreen Australia, the Bone Marrow Transplant Program and chemotherapy services
- The Extended Medicare Safety Net threshold will be increased to $2,000 for Medicare eligible out of pocket expenses per year, resulting in $105.6 million in savings over four years
- Savings in Health Workforce Australia will be achieved, resulting in $80 million in savings over four years
- $12.1 million will be used to establish a national contact register for high risk implantable devices
- Aged care providers whose employees are paid under state and territory awards will be excluded from the aged care workforce supplement to save $91.8 million over four years
- Housing is conspicuous in its absence from the Budget. There has been no commitment to an extension of the National Rental Affordability Scheme and no response from the Treasurer to advice from Treasury about initiatives which the government could undertake to increase supply of land and housing.
Immigration & Citizenship
- $2.9 billion has been set aside for funding within the Immigration portfolio, an increase of nearly $2 billion on last year’s budget estimate and a $3.2 billion increase over the forward estimates
- The application charge for a 457 visa will increase to $900 to raise $198 million over four years
- The amount of Official Development Assistance that can be used for illegal maritime arrivals will be capped at $375 million per year
- The Migration program will be maintained at 190,000 persons with 128,550 places for skilled migrants, 60,885 family migration places and 565 special eligibility places
- $15.7 million will be used to expand Melbourne International Transit Accommodation to accommodate up to 430 irregular maritime arrivals
Industry, Innovation, Science and Research
- $45 million investment in a new Skills Connect Fund that will provide industry with a single point of access for skills and workforce development support.
- More than $68 million to be invested in an industry-led pilot program to trial new training pathways into high-demand trade and technical occupations.
- A $1 billion jobs package to support an innovative and dynamic economy and create more Australian jobs. Projects with a capital expenditure of $500 million or more to have Australian Industry Participation Plans.
- Up to 10 Industry Innovation Precincts will be established, to better link industry to research and new business opportunities, at a cost of more than $500 million.
- A new $378.6 million Venture Australia package will provide finance to help innovative small and medium businesses get off the ground, grow and create new high-skill jobs, including a new round of capital in the Innovation Investment Fund program, which will be matched by private sector funds.
- $160 million in Clean Technology Investment Program funding to 2014-15 to increase manufacturing investment and boost productivity and competitiveness.
- Forecasts for the carbon price when the scheme is linked to Europe’s Emissions Trading Scheme (ETS) on 1 July 2015 were reduced to $12.10, reducing carbon price revenue by around $6 billion over the forward estimates. As a result, the cost to the Budget of industry assistance arrangements, such as free permits which automatically adjust with the value of the carbon price, is expected to be $3.9 billion lower over the same period.
- A number of significant changes to expenditure within the Clean Energy Future package will result:
- $274 million of coal industry assistance will be reduced in line with the revised price, over the forward estimates;
- $662 million of uncommitted funds for low emissions coal and carbon capture and storage will be returned to the Budget;
- Funding for the Biodiversity Fund is to be adjusted – expenditure for the program will total over $1 billion over the 8 years to 2018-19.
- Adoption of new land sector accounting rules will allow the Carbon Farming Initiative Non-Kyoto Fund to be returned to the Budget, saving $235 million over the forward estimates;
- Australian Renewable Energy Agency (ARENA) funding will be extended by two years to 2021-22, with total funding for the program remaining above $3 billion for the life of the program;
- $135 million of uncommitted funds in the Regional Structural Adjustment Assistance Program will be returned to the Budget over the forward estimates as no region has been strongly, negatively affected by the introduction of the carbon price;
- $160 million of funding for the Clean Technology Programs will be brought forward to 2014‑15 to provide additional support and respond to strong demand from Australian manufacturers, and
- $98 million of uncommitted funds from the Low Carbon Communities Program will be returned to the Budget.
- Carbon capture and storage is being cut by $600 million
- $24 billion in infrastructure projects for rail and road, including:
- $715.0 million towards the Brisbane Cross River Rail project ($100.0 million in 2012-13).
- $718.0 million for the upgrade of the Gateway North (conditional on no new tolls being imposed)
- $279.0 million to widen the Ipswich Motorway
- $317 million for a package of works to upgrade the Warrego Highway
- $4.1 billion over 10 years for a range of Bruce Highway projects.
- $3 billion towards an underground Melbourne Metro to help increase capacity on the Melbourne Rail Network.
- $525.1 million to complete 38 kilometres of capacity improvements on the M80 Ring Road
- $257.5 million (previously announced) to construct the next stage of the duplication of the Princes Highway West
- $448.0 million to upgrade and widen South Road ($20.0 million brought forward to kick–start the project)
New South Wales
- $1.8 billion towards a Sydney Motorways Program to deliver the M4 and M5 extension in partnership with the NSW Government and private sector
- $400.0 million to help deliver the F3 to M2 Missing Link in partnership with the NSW Government, and $195.8 million for a package of four projects to widen and improve capacity of the F3.
- $500.0 million over ten years for future rail infrastructure in Perth, with priorities and construction timetables to be determined in consultation with the WA Government.
- $307.8 million for a package of works to be undertaken along the Great Northern Highway
- $418.3 million for the construction of the Swan Valley Bypass (with $25.3 million brought forward to kick–start the project).
Regional Australia and Local Government
- The Government has brought forward $1.136 billion in Financial Assistance Grants to this financial year (2012-13) for immediate use. This will allow the 2013-14 Budget deficit to appear smaller and will release funds for popular community projects in an election year.
- As a result of the drop in the forecasts of the carbon price, the Government is axing the Clean Energy Future — Regional Structural Adjustment Assistance package, saving $135 million over the forward estimates.
- Additional tax cuts will be deferred until the carbon price is estimated in the budget to be above $25.40 per tonne, which is currently projected for 2018‑19. This will save $1.5 billion over the forward estimates.
- A cash bidding system will be introduced for the allocation of offshore petroleum exploration acreage for areas containing known resources and mature areas from 2014. The existing work program bidding system will be maintained for all other areas. The measure is estimated to increase revenue by $160.3 million over three years from 2014-15.
- The Government will save $1.1 billion over the forward estimates by removing the right of large mining interests to claim an upfront deduction for the cost of exploration of smaller mines they take over, instead depreciating them over 15 years.
- Funding for the Carbon Capture and Storage Flagships Program will be reduced by $500 million over three years.
- The Government will provide $154.0 million over four years in supplementary funding to Geoscience Australia to support priority activities.
- The Government will cease its funding agreement with the Global Carbon Capture and Storage Institute following a request from the Institute. This measure will provide savings of $45.0 million over four years.
- The Government will reduce funding by $88.2 million over two years for the National Low Emissions Coal Initiative.
For more detail and analysis of the Budget, please contact CapitalHill Advisory on (02) 6198 3210 or via email email@example.com