Pre-Budget: How wrong will MYEFO be?
Today sees the Coalition delivering its final budget of this election cycle and what is also likely to be the ‘starters gun’ for a May Federal Election. It is why all expect big vote grabbing items to be front and centre of Treasurer Josh Frydenberg’s first (and possibly only) budget.
What will the headlines look like?
Surplus reached in 2018/19 – a further year earlier than forecasted (after bringing it forward at MYEFO)
The government was estimating a $5.2 billion deficit in 2018/19 with a $4.1 billion surplus in 2019/20 at the December update. Expectations now are for a surplus this year to the tune of $6 billion as personal and corporate tax receipts top expectations and the average iron ore price smashed expectations. In fact, it is likely that the average iron ore price could be as much as US$19 better than forecasted which should deliver an additional $4.75 billion to the budget bottom line.
Unemployment revised to 4.9% from 5%
In 2018/19 an additional 291,000 citizens found employment at a rate of 2.3% which is well above the 20-year average. However, this was slightly weaker than the 2017/18 boon year. All in all, personal income tax receipts are up on MYEFO; a win for budget receipts.
Export surge
China’s stimulus measure in 2018 and several environmental disasters caused a surge in iron ore that has lasted significantly longer than expected. However, this is not just an iron ore story; coal, copper and oil will also beat MYEFO expectations. A further win for the budget.
Personal Income Tax cuts coming sooner and larger
The personal income tax cuts announced in the 2017-18 budget are likely to be brought forward and ramped up tonight. That is likely to mean that the July 2022 income tax cuts could be brought forward and legislated for 2020, on top of those already starting July 1 this year. Secondly, those cuts not placed in the forward estimates but in the ‘future expectations’ category could be brought into the forward estimates meaning these cuts could be seen in 2022 a win for all taxpayers.
Tax offsets for low-income earners and families
The majority of this has already been announced with the Energy Offset and a few other one-off welfare payments.
NDIS now ‘fully funded’
The government has argued that the NDIS wasn’t fully funded until now, however, this is due to an underspend over the financial year of $5 billion-plus. So, hard to see this as a ‘win’.
Road and Rail Builders – Infrastructure the pillar of the economy
An additional $1 billion has been preannounced which is just a ramp-up of the 2017/18 road and rail projects. The government will look to sell this as its ‘Jobs and Growth’ vision. Victoria looks like it’s getting the bulk of this additional money, which is not surprising considering how bad the coalition is doing in the state.
Energy Reduction schemes – Now ‘Climate Solutions’
Most of this is pre-announced as well. However, it will be an election issue, thus watch for possible additional funds to the $2 billion ‘Emissions Reduction’ Fund, now called the ‘Climate Solutions’ Fund. Further funds to the $1.4 billion Snowy Hydro 2.0 program are possible. Look for a possible ‘green transport’ fund to take on Labor’s electric car policies. Finally, there were 12 power projects that have been shortlisted across Australia; could some of these now be underwritten by the budget?
The conclusion from all of this is that if its rain money for the government in an election year, it is likely to mean it will rain money for the electorate too. Get your collection hat out.