Budget Australia: tax relief, nothing bold
CANBERRA: Even though this year’s Budget is pretty good politics and reasonable economics, on almost every front, it is a missed opportunity to be bold.
Last year’s Budget was a bankbashing bombshell, with 45% of profits for five of Australia’s biggest banks yanked away, not for financial stability reasons, but because, as Treasurer Scott Morrison hinted at the Budget press conference, people don’t like the banks very much.
The muchvaunted return to surplus is now planned for 201920 at just 0.1% of GDP. In 201718 we are told to expect a deficit of 1% of GDP ($A18.2 billion [$NZ19.5 billion). That’s before the forecast 3% real GDP growth from 201819 onward kicks in. A heroic assumption.
Compare that to an actual of 2.1% in 201617. That topline forecast is not insane, but it is certainly bullish.
Having previously introduced, but not wholly managed to get through the Senate, a 10year plan to reduce the company tax rate from 30% to 25%, this year the Government has a sevenyear ‘‘Personal Income Tax Plan’’.
Under the ‘‘PIT plan’’ the number of tax brackets will be reduced from five to four. By 202425 the taxfree threshold will remain at $18,200 and a 19% tax rate will apply up to income of $41,000, at which point the 32.5% rate will kick in. The top marginal rate of 45% will apply to incomes above $200,000.
One good thing the plan does address (at least in part) is bracket creep, where wage growth coupled with fixed tax thresholds leads taxpayers to pay more. Under the new plan, 94% of Australians will pay no more than a 32.5% marginal tax rate. That compares to 63% of Australians who pay that or less, under existing policy settings.
In terms of tax relief, it’s relatively modest. A person earning $50,000 will be $530 better off in 201819.
Because of changes to the Low and Middle Income Tax Offset, this falls to $215 for someone earning $120,000.
Now $530 posttax dollars, for someone on $50,000 a year, isn’t nothing. But it doesn’t really make up for wage growth so sluggish (2.2% on average last year) that it barely keeps up with inflation.
This is all part of the Government’s newly announced, but thoroughly leaked, mantra that taxes should be no more than 23.9% of GDP.
There’s a ‘‘crackdown’’ on the black economy, with a $10,000 limit on cash transactions. Who knows how that will be enforced?
The sneakiest thing of all is taxing tobacco 12 weeks earlier when it leaves the warehouse, rather than at present upon entry into Australia. That will boost tax receipts once, and once only, in 201920 by $3.27 billion. Another small but sensible initiative is increasing the Pension Work Bonus from $250 to $300 per fortnight, which permits pensioners to earn up to that amount without affecting their pension eligibility.
On a more disappointing note there is a reasonably large amount of fanfare but very little substance about ‘‘backing regional Australia’’. There is $200 million for a third round of the Building Better Regions Fund to support infrastructure on top of the $272 million from the Regional Growth Fund.
That’s fine but it falls well short of a systematic plan for regional infrastructure and does not address regional unemployment, particularly youth unemployment, in a meaningful way.
There are a host of socalled ‘‘integrity measures’’ to do with taxation. There’s the ofttalked about tightening of thin capitalisation rules, whereby companies load worldwide debt on to an Australian entity to increase interest charges in Australia, instead of in low taxing jurisdictions like Ireland. This is in addition to other attempts to get multinationals to pay more tax. These are more likely to get multinationals to pay lawyers more, but it’s now customary padding in every Budget.
The forecasts are pretty rosy in this year’s Budget, but they always are. Overall, it’s a hard Budget to hate, and a hard Budget to like. But it is a classic political preelection Budget. — theconversation.com