If I were in charge

What we would like to see in tomorrow’s Federal Budget

THE Federal Government is rolling in cash at the moment … what they do with this windfall in tomorrow’s Budget will define Scott Morrison’s legacy as Treasurer.

The Budget is much better than what was forecast a year ago … $14 billion better off. Consumers are spending, business is investing, governments have cut expenses, Australians are getting jobs (and paying tax) and the global economy is stronger.

This combination is producing a “river of gold”:

Budget deficit is at a nine-year low.

from company tax is up a whopping 23 per cent.

is up

The annual Revenue Income tax

5.4 per cent.

tax revenue is up $36.2 billion.

Over the past year, the annualised budget deficit has dropped by $24 billion … if that pace of improvement continues the Budget would be balanced by this Christmas.

That’s incredible. But, of course, it won’t happen. Politicians won’t be able to contain themselves. They’ll want to use this windfall for their own advantage.

That’s understandable if they use it wisely. So what do we want to see in tomorrow’s Federal Budget?

Total

MODERATE TAX CUTS

We reckon Australians deserve some sort of tax cut to offset the small wage growth that has helped companies build their profits and, consequently, pay higher taxes to the government. In other words, we should get a bit of payback for doing the right thing.

But it is a delicate balance. Too big a tax cut and you squander the opportunity of using a windfall to make lasting change.

We like the strategy of lifting tax thresholds as an efficient way to generate a tax cut because it counters “bracket creep”, which is the most insidious financial trick to increase tax revenue.

It’s where you’re pushed up into a higher tax bracket because of inflationary income increases or you get a pay rise for success at work.

A relatively small rise in the tax thresholds can deliver a $1525 a week cut for the average worker, which would be welcome in this environment.

Plus we think it’s a bit unfair for big corporate bosses to be lobbying the Government for a company tax cut and not extend that to all Australians.

A SERIOUS CHUNK OF DEBT TO BE PAID OFF

A few years ago we weren’t that worried about Government debt levels because they seemed manageable and reasonably low compared with other First World economies.

Now it’s a different story. Our debt levels have risen while other countries have followed “debt busting” policies.

You know how we’re all being told to pay down our personal debt while times are good, and interest rates are low … the same theory should extend to government.

In 2010 our Government net debt was 3.2 per cent of GDP. That means it was 3.2 per cent of the value of our total economy, well below most other comparable economies.

Today, that net debt level has risen to around 19 per cent of GDP. That’s still pretty good on a global scale but doesn’t give us much of a buffer if the economy turns down.

Paying off a chunk of debt is prudent, especially when the personal debt of average Australians is so high.

SENSIBLE INFRASTRUCTURE SPENDING

Congested cities and poor transport hurts an economy badly by reducing efficiencies. Workers have trouble getting to work while exports are slower to be shipped.

It looks as though this Federal Budget will have a big focus on infrastructure spending … which it should. Apart from making us more efficient, infrastructure has a multiplier effect through the entire economy, a bit like the mining investment boom.

Infrastructure is labour intensive which creates jobs (both skilled and unskilled), and people spend money at shops and restaurants, and pay tax.

It’s a winning strategy on a whole range of fronts.

NO PRE-ELECTION PORK BARRELLING

The average Australian has woken up to being bribed by politicians wanting to buy our vote with cash splashes which don’t seem to have a purpose. In the old days, as an election approached, federal budgets would hose money at sectors where the government thought it was weak.

We remember past budgets which specifically focused on families, seniors or small business with overt pork barrelling. Thankfully that doesn’t seem to wash any more.

Budget responsibility and economic management is now a key factor when Australians cast their votes.

A SOLID DOMESTIC AND GLOBAL ECONOMIC OUTLOOK What we’re really talking about here is China. When one customer accounts for 30 per cent of sales, your future is tied to them.

It’s like the old saying that when you owe the bank $1 million they own you. But when you owe the

bank $100 million, you own them. China owns us. While politically our relationship with China at the moment is frosty, to say the least, business and trade-wise it is as strong as ever. While agriculture, tourism and commodities exports are going gangbusters, our sales of services to China are also growing exponentially.

That’s the really pleasing aspect of our trade with China … it’s broadening across a number of new sectors.

A solid China means the Australian domestic economy will stay solid.

Another key forecast to look out for in the Federal Budget is wages growth. Over the last few years that’s been our achilles heel. Continued strong job creation will hopefully lead to strong wage growth and, therefore, higher tax revenue.