Last week we brought you an analysis of the 2019 Budget handed down by Treasurer Josh Frydenberg. The Australian tradition is that the Treasurer hands down the Budget on the first Tuesday night in May and the Leader of the Opposition responds two nights later. This year has been a little different, with the Budget coming a month early due to the Federal election scheduled for May. This did not just change the timing of the Budget speeches: it also changed their nature, as both the Budget and the Opposition Leader’s response are effectively campaign launches.
Because of that, we thought it only fair this year to match our analysis of the Budget with a discussion of the Opposition Leader’s response.
Recap of the Treasurer’s Budget from Last Week
Perhaps the big ‘take out’ from last week’s budget was the fact that the government expects the Federal Budget to be in surplus in the coming financial year. The surplus is not huge – just 0.9% of revenue. But it will be the first time Australia has had a Budget surplus since the global financial crisis of 2008.
The other major announcement concerned tax cuts. In the 2018 Budget, the then treasurer Scott Morrison announced a raft of tax cuts to take effect over the coming six years. This year, Frydenberg brought some of these forward, such that people earning between $48,000 and $80,000 will be paying $1,080 less in tax. People earning less or more than these amounts will also pay less tax, but the reduction is smaller.
The majority of the Government’s proposed tax cuts will still not really take effect until 2024 and beyond. By then, 94% of taxpayers will be paying marginal income tax of just 30%. Business taxes will also be cut – with a mooted rate of 25% for small businesses taking effect from July 1, 2021.
On the spending side, several infrastructure projects were announced. Not surprisingly, these do seem targeted to benefit residents of marginal electorates, especially along Australia’s eastern seaboard.
In responding to a Budget, the Opposition Leader can only give much more limited detail. He or she (although it’s always been a he) does not have access to the same information and resources as the Government. What’s more, the Government is usually announcing how it will manage its revenue and expenditure. The Opposition Leader is then typically commenting on the proposed changes.
So, the Opposition Leader does not usually propose an alternative Budget. This year is a little different, given that there is every chance that there will be a change of Government in May. In that case, the Opposition will of course become the Government. Labor has already announced that, if they win office, they will deliver what is known as an ‘economic statement’ sometime before the end of September. This would basically become their short-term Budget for the remainder of that financial year. So, Shorten’s response contained more than a little of ‘watch this space.’
That said, perhaps unsurprisingly the Opposition are not opposing the immediate impact of the proposed tax cuts. In fact, for people on incomes below $48,000, Labor are proposing to be slightly more generous – although the additional benefit to low income earners will be no more than $95 per year. People earning more than $200,000 per year will pay slightly more tax (around $265 per year). Basically, in the short term the two plans for income tax are virtually the same.
In last year’s Budget, the Government laid down a staged process by which tax brackets would rise incrementally between now and June 2024. As of 1 July 2024, Australia would only have three income tax brackets. 94% of people would be earning between $45,000 and $200,000 a year and they would all pay marginal tax of 30%. These changes have already been legislated, but Labor have announced that they will repeal that legislation if elected. This means that the immediate tax cuts outlined above are the only ones to which Labor is committed. Labor has announced it will review consider further tax cuts, but wants to wait until it is in office before making any firm commitments.
This seems pretty sensible. Over the coming 10 years, the Coalition’s proposed tax cuts (which have already been legislated for) will reduce government revenue by more than $150 billion. Any incoming Government would want to review a reduction like that – especially as they would want to maintain the surplus status that the Budget has now returned to. To maintain a surplus, any reduction in revenue would have to be matched either by a reduction in spending or an increase in other revenue. If Labor do win office, there is probably some money that they will want to spend.
One spending announcement they have made is to do with cancer treatment. The Opposition Leader announced a $2.3 billion package designed to reduce out-of-pocket expenses for people being treated for cancer. This proposal has not been detailed too precisely just yet, but will include things like bulk billing for visits to oncologists.
With an election not far away, you can be sure this is the first of many proposed expenditures.