Will the Budget Win the Election?
The answer to this question is probably not. The election is likely to be in March 2019 by which time most of the electorate will have absorbed the budget into their daily housekeeping and will be looking for something new.
If the government gets a bounce from this budget there’s an argument that it should go early, in the second half of this year but the budget is not structured this way.
It’s designed to show that the government has a plan which, over the next two terms, will lead to enhanced living standards, a stronger economy and fiscal consolidation through the reduction of debt and deficit.
The electoral timetable mandates that the election will be held in February or March next year.
May 18, 2019 is the latest that an election for both houses can be held but an election then would mean campaigning through Easter whereas a ballot in late February or March would mean a campaign which starts after the Christmas break and culminates before the Easter holiday.
It would also have the advantage that the government could refresh its economic package by having a mini budget at the time of the Mid-year Economic and Fiscal Outlook (MYEFO) which is normally released in December.
Treasurer Scott Morrison is presenting this budget as a low risk programme to promote a stronger economy.
In his budget speech he hammered higher taxes as a threat to the economy while showing that the economy would return to surplus a year early without radical intervention:
“In 2017-18, the budget deficit will be $18.2 billion, less than half what it was just two years ago.
“This will be the best budget outcome since the Howard government’s last budget a decade ago.
“The deficit will fall again to $14.5 billion in 2018-19.
“The budget is forecast to return to a modest balance of $2.2 billion in 2019-20 and increase to projected surpluses of $11.0 billion in 2020-21 and $16.6 billion in 2021-22.
“The Turnbull government has now stayed on track for a surplus for six successive budget updates.
“Over the medium term the projected budget surplus rises to over one percent of GDP, without breaching our tax cap, consistent with our fiscal strategy”, he told the House of Representatives.
At the same time he made good on his exhortation to former Treasurer, Peter Costello who said he would be dead before the government’s debt was eliminated, by claiming in his speech: “With the budget returning to balance we will start paying down debt.
“Net debt will now peak at 18.6 per cent of GDP in 2017-18 and will fall by around $30 billion over the forward estimates. Over the medium term net debt will fall to 3.8 per cent of GDP by 2028-29.
“Gross debt will peak during 2019-20 at less than 30 per cent of GDP. Over the medium term gross debt will be $126 billion less in 2027-28 than was estimated at the mid-year update in December.
“It has been a long road back from where we started in 2013.”
In the budget overview the government paints Labor’s high tax strategy as posing a risk to the economy:
“The government has imposed a sensible speed limit on taxes as part of its fiscal strategy so the tax burden on the economy does not throttle growth. It’s a clear rule on the maximum level the government considers Australians should pay. The greater the tax burden on the shoulders of Australians and the army of business owners, the greater the risk it will cost jobs, discourage investment and restrain growth.
“The government will keep taxes as a share of GDP within the 23.9 per cent cap so we do not unfairly burden Australians,nor allow taxes to chase ill-disciplined spending.
"The tax cap would be breached in 2021-22 without personal income tax relief and the Enterprise Tax Plan.
"Our decision to provide measured and targeted tax cuts in this budget, and our broader seven-year plan to reform our personal income tax system, is done responsibly and affordably, so as not to jeopardise our return to budget balance.
"The government’s commitment to budget repair has also resulted in net debt peaking one year earlier than expected at the 2017-18 MYEFO, strengthening the government’s balance sheet.
"This provides the government with greater flexibility to address future economic shocks should they arise.”
The government claims that the fact that it has put a cap on tax receipts means that it has to provide personal income tax cuts in order to avoid breaching the cap.
These will be provided inthree stages over seven years.
The first will involve extending the Low Income Tax Offset from individuals earning $67,000 to individuals earning $90,000.
This will occur in the 2018-19 financial year.
In 2022-23 the Coalition will eliminate bracket creep by changing the tax thresholds and, in 2024-25, the government will abolish the 37% tax bracket altogether.
These cuts will, in a sense, wedge the Labor Party which will have to adopt them or propose an alternative set of cuts.
The government has also tried to restore some of the faith of its base by making provision for older Australians.
It’s increased access to pension loan funds and mandated that pensioners can earn $7,300 a year without impacting their pension.
It is also funding additional home care packages so that, by 2021-22, there will be 74,000 places.
The government has also proposed an important new initiative in the Consumer Data Right which enables individuals to access data held by public institutions so that it can be provided to service providers helping to plan income and wealth management.
Overall this is a prudent budget that does what it claims: build a stronger economy.
It will be difficult to pick holes in it but it could be undermined by a general distrust of business that has been engendered by the financial sector royal commission.
At the moment people are inclined to see government as a safer pair of hands than the private sector.