Coalition pressures states to deliver infrastructure projects or miss out on funds
The Morrison government is attempting to ratchet up political pressure on the states to quicken the pace of infrastructure projects to help kickstart the economic recovery, signalling it will focus federal resources on jurisdictions willing to cooperate and shun laggards.
Tuesday’s budget will contain tax cuts, concessions and investment incentives for business, and labour market assistance designed to help people into employment as income support delivered through jobkeeper and jobseeker tapers.
The government says the overriding objective of the 2020 budget is job creation, but the economic statement will also include new spending on aged care services – likely a boost to homecare packages.
The Coalition has also been telegraphing a sizeable spend on infrastructure to boost employment and economic activity, and there is speculation the budget will impose requirements on the states to get moving or lose commonwealth support.
The finance minister, Mathias Cormann, declared on Sunday the states needed to pick up the pace. “The general principle is where we make funding available to build important productivity-enhancing, economy growing infrastructure, we want the states to get on with it,” he told Sky News.
“If the states are not able or willing to get on with it, then we will seek to work with states that are. If some states aren’t prepared to get cracking, then we will be working with those states that are”.
The Victorian premier, Daniel Andrews, shrugged off the jawboning from Canberra on Sunday, telling reporters he was pursuing a $1.75bn infrastructure package with Scott Morrison. “No Victorian will be lectured from the commonwealth government about infrastructure, about building things,” Andrews said.
The government has been flagging for weeks it will use the budget to bring forward income tax cuts as part of efforts to stimulate demand in the economy, even though a range of economists think that strategy is a poor stimulus given Australian households are currently saving at record levels.
The government has legislated tax changes to take effect in 2022 and 2024 that it could pull forward. The stage three proposal previously scheduled to take effect in 2024-25 reduces the tax rate for those earning between $45,000 and $200,000 to 30 cents in the dollar.
With parliament set to resume for budget week, the shadow treasurer, Jim Chalmers, said on Sunday that Labor remains opposed to the stage three change.
Labor opposed stage three when the government presented it in 2019 but did not vote against it because it was brought to parliament in an omnibus bill.
The government is expected to pursue that strategy again, but there is an appetite in Labor to oppose the tax cuts for very high-income earners if there is an opportunity to do that without denying relief to low- and medium income earners.
Chalmers told the ABC the stage three flattening of the tax scales was bad policy. Of the options the government had produced, stage three was “the least affordable, it’s the least responsible, it’s the least fair and it is the least likely to get a good return in the economy because higher income earners are less likely to spend in the economy”.
But Chalmers did not ruling out voting for the measure as Labor did in 2019. He said it was impossible at this point to be definitive. “We don’t know what the timing is, we don’t know if there are any additional measures that they intend to put up on Tuesday night”, he said.
In the leadup to budget week, the government has pre-announced a number of initiatives, including an extra $1.5bn for manufacturing, a $3.5bn upgrade to the national broadband network, funding to promote a “gas-led” recovery, removing the 47% fringe benefits tax (FBT) impost on the retraining businesses give redundant or redeployed workers, and the extension of some tax concessions for businesses with a turnover of between $10m and $50m.
On Sunday, the government confirmed that businesses prepared to take on new apprentices from Monday would be eligible for a 50% wage subsidy. The scheme – expected to cost $1.2bn – is capped at 100,000 subsidies and will be available to businesses of all sizes.
Labor welcomed the program but said it would not reverse the loss of apprentices and trainees evidenced during the Coalition’s period in government, and it would not fix the problem of income support through jobkeeper being withdrawn prematurely.
The budget is expected to contain the largest deficit in decades – more than $200bn. The treasurer, Josh Frydenberg, has argued the borrowing “can be paid back by growing the economy” and there is “no economic recovery without a jobs recovery”.
Frydenberg has confirmed that unemployment, now 6.8%, will be forecast to rise, although not to 10%, as was the prognosis some months back. He has also confirmed economic growth will be hit by a collapse in overseas migration.