Commonwealth Budget : what does it mean? Economic Society of Australia (Victoria) Danielle Wood, Fellow Grattan Institute 16 May 2017

Transcription

1 Commonwealth Budget : what does it mean? Economic Society of Australia (Victoria) Danielle Wood, Fellow Grattan Institute 16 May 2017

2 Commonwealth Budget 2018 Budget repair recedes over the horizon again Budget deficit has barely changed in a year We are still hoping for organic revenue increase to repair the budget Assumptions driving this outcome are vulnerable to events already There is some genuine budget repair ($7b/yr) mostly from higher taxes More honest starting point zombies abandoned Big tickets are increase in income tax $4b/yr, Bank tax ($1.5b/yr), higher education savings ($1b/yr) Some spending increases particularly schools Housing affordability not solved The issue will not go away A deeply political budget Australian governments are responding to the same political forces affecting many other developed countries Hits elites (banks) and outsiders (foreigners and welfare recipients) More money for the regions, including big infrastructure spend 2

3 Budget repair mainly depends on increasing tax revenues Commonwealth expenditures and revenues per cent of nominal GDP 27% Forecast 26% Receipts 25% 24% 23% Payments 22% 21% 20% 19% Financial year ended Source: Commonwealth Budget Papers,

4 Forecast surpluses have not been achieved Actual and forecast Commonwealth underlying cash balance, per cent of GDP 1 Forecast made in Actual Financial year ending Source: Grattan analysis of Commonwealth Budget Papers to

5 budget makes genuine progress on budget repair Contribution of budget measures to fiscal balance at end of four years $bn budget measures 20 Revenue measures Net impact 15 Spending measures Budget measures announced FY starting Source: Grattan analysis of historical Budget Papers, MYEFO and PEFOs 5

6 Revenue increase is driven by personal income tax growth Commonwealth taxation trends per cent of GDP 14 Personal 12 Forecast Indirect Corporate Source: Budget Paper 1 6

7 2017 budget doubles down: increases forecast wage growth as the reality goes lower Actual and forecast growth in wages, per cent Forecast made in Actual Financial year ending Notes: Total hourly rates of pay excluding bonuses, private and public wages Source: Grattan analysis of Commonwealth Budget Papers to

8 Commonwealth Budget 2018 Budget repair recedes over the horizon again Budget deficit has barely changed in a year We are still hoping for organic revenue increase to repair the budget Assumptions driving this outcome are vulnerable to events already There is some genuine budget repair ($7b/yr) mostly from higher taxes More honest starting point zombies abandoned Big tickets are increase in income tax $4b/yr, Bank tax ($1.5b/yr), higher education ($1b/yr) Some spending increases particularly schools Big jump in infrastructure spending Lots of measures affecting foreigners visas, property taxes Housing affordability not solved The issue will not go away A deeply political budget Australian governments are responding to the same political forces affecting many other developed countries 8

9 Housing affordability is a genuine policy concern Ratio of median dwelling price to median annual gross household income Notes: median household income from ANU analysis Source: Core Logic Housing Affordability Report December

10 Home ownership is falling for younger ages, particularly for low-income earners Home ownership rate by age Per cent Percentage point change in home ownership rates, 1981 to % 0% Age-group Census HILDA % -20% -30% -40% Income quintile Lowest 2nd 3rd 4th Highest Source: Grattan Institute, Wealth of Generations; HILDA release 15 10

11 On housing affordability, the good reforms are hard; and the easy reforms are all cosmetic Social, economic and budgetary impacts Positive Home in pension assets test Neutral Tax empty dwellings Shared equity Tax preferred savings Congestion charging Improve renting conditions Macro-prud. rules SMSF borrowing Social housing bond aggregator Early access to super Regional development stamp duty for downsizers FHB grants / concessions Negative Minimal Small Medium Political difficulty: Abolish stamp duty Improve transport project selection Boost density in middle suburbs Reform state land taxes CGT discount Boost density along Negative transport corridors gearing Foreign investor greenfield land supply crackdown / taxes CGT on home Downsizers keep pension / exempt from super rules Reduce immigration Easy Medium Difficult Large Impact on housing affordability Very large Source: Grattan analysis. Notes: Prospective policies are evaluated on whether they would improve access to more affordable housing for the community overall, assuming no other policy changes. Assessment of measures that boost households purchasing power includes impact on overall house prices. Estimates 11 of economic, budgetary or social impacts are direction and aim to encourage an informed discussion.

12 budget goes for the cosmetic and easy changes Social, economic and budgetary impacts Positive Home in pension assets test Neutral Tax empty dwellings Shared equity Tax preferred savings Congestion charging Improve renting conditions Macro-prud. rules SMSF borrowing Social housing bond aggregator Early access to super Regional development stamp duty for downsizers FHB grants / concessions Negative Minimal Small Medium Political difficulty: Abolish stamp duty Improve transport project selection Boost density in middle suburbs Reform state land taxes CGT discount Boost density along Negative transport corridors gearing Foreign investor greenfield land supply crackdown / taxes CGT on home Downsizers keep pension / exempt from super rules Reduce immigration Easy Medium Difficult Large Impact on housing affordability Very large budget Source: Grattan analysis. Notes: Prospective policies are evaluated on whether they would improve access to more affordable housing for the community overall, assuming no other policy changes. Assessment of measures that boost households purchasing power includes impact on overall house prices. Estimates 12 of economic, budgetary or social impacts are direction and aim to encourage an informed discussion.

13 Commonwealth Budget 2018 Budget repair recedes over the horizon again Budget deficit has barely changed in a year We are still hoping for organic revenue increase to repair the budget Assumptions driving this outcome are vulnerable to events already There is some genuine budget repair ($7b/yr) mostly from higher taxes More honest starting point zombies abandoned Big tickets are increase in income tax $4b/yr, Bank tax ($1.5b/yr), higher education ($1b/yr) Some spending increases particularly schools Big jump in infrastructure spending Lots of measures affecting foreigners visas, property taxes Housing affordability not solved The issue will not go away A deeply political budget Australian governments are responding to the same political forces affecting many other developed countries 14

14 Minor party vote is growing 1 st preference Senate votes to minor parties (not LNP, Labor, Greens) 40% 30% 20% 2016 (Turnbull) 2013 (Abbott) 2010 (Gillard) 2004 (Howard) 2007 (Rudd) 10% 0% Distance to State GPO (km, log scale) Source: AEC, Grattan Institute analysis 15

15 The minor party vote is highly fragmented First preference Senate vote share, minor parties (not LNP, Labor, Greens), % 30% Liberal Democrats Hinch One Nation Xenophon 20% Lambie 10% 0% Source: AEC NSW VIC QLD WA SA TAS All other (<3% in all States) 16

16 And there s a strong regional element 1 st preference Senate votes 2016 to larger parties (LNP, Labor, Greens) More than: Brisbane 85% 80% 75% 70% 65% 60% Perth <60% Ordinary Australians do have a common enemy, but it is not Aborigines, Asians, or people of any particular colour, race or creed. Our common oppressors are a class of raceless, placeless cosmopolitan elites who are exercising almost absolute power over us. Pauline Hanson, The Truth (1997) Source: AEC, Grattan Institute analysis Adelaide Melbourne Sydney 17

17 Budget looks like clever politics Neutralises attacks from Labor by recognising concerns about services More spending on health and education BUT already outbid by Labor Anti-elite policies hit on the banks Bank levy ($1.5 billion a year) Intrusive new regulations APRA determine senior appointments, pay and terminations Sizeable fines for executives Outsider politics targeting foreigners and the unemployed Higher taxes for foreigners buying Australian houses Levy on businesses employing foreign workers More crackdowns on the unemployed drug and alcohol testing, demerit points with payment cuts for not meeting obligations More cash for the regions $8 billion off budget for inland rail $500m Victorian regional rail, $600m National Rail program $472m over forwards for Regional Growth Fund 18