Australian 101: The 2018 Australian Federal Budget
On Tuesday 8 May the Australian Treasurer, Scott Morrison handed down his third, and possibly last, budget in the Turnbull Government. With a Federal Election due to be held by Saturday 18 May 2019, most commentators believe this will be the budget the Coalition Government take to the polls, with the 2019-2020 Budget to be delivered by the winning party following the next election campaign.*
Reflecting the belief that this budget would be key to the next election campaign, the Treasurer’s speech sold a good news story and focused squarely on jobs, growth and tax cuts, usually considered to be vote winners for the Coalition.
The budget headlines included: Australia’s net debt peaking in the 2018-19 financial year at AUD$341 billion (or 19 percent of GDP) and falling below 5 percent by 2029, growth rates increasing to 3 percent this financial year then holding steady for the next few years, and personal income tax cuts amounting to $530 per person for individuals earning between $48,000 and $90,000 in 2018-19, followed by larger cuts for higher earners in future years.
In his Budget reply speech, Opposition Labor Party Leader, Bill Shorten, promised larger tax cuts for earners in the $48,000 to $90,000 bracket, amounting to $928 a year, as well as increased spending on health and higher education.
The Labor Party also emphasised fiscal responsibility in its budget reply and both major parties share a commitment to reducing Australia’s net debt (which is already low by global standards) and to returning the budget to surplus over the medium term.
The response in Australia was mixed, with business groups and economic think tanks generally supporting the Coalition budget and trade unions and social campaigning groups such as Get-Up describing it as unfair. The Institute of Public Affairs criticised the budget for not cutting taxes fast enough or deep enough.
The Labor Party said it would support the proposed immediate tax cuts, but would not commit to proposed company tax cuts or to the longer-term cuts in both the top rate of income tax and increasing the top threshold to $200,000.
The Greens Party has said it will not support either major party’s tax plans and would instead propose investing the projected surplus back into public services and infrastructure.
In the latest Newspoll result published on 28 May following the budget and opposition response, the Coalition fell by 1 percent in two-party preferred terms to 48 percent with the Labor Party sitting on 52 percent. This reversed a slight recent gain for the Coalition, but still has them higher than the lows of 2017.
Polling following the budget and the budget reply indicated broad community support for Labor’s proposals with 45 percent supporting Bill Shorten’s income tax policy over the 33 percent who supported the Coalition’s policy and 60 percent of the electorate is currently opposed to further company tax cuts.
It looks certain that the proposed income tax cuts for individuals earning under $90,000 per year will go into effect within the 2018-19 financial year, but company tax cuts will be reliant on the Coalition managing to corral a disparate group of cross-bench Senators in Australia’s Upper House, with Labor and the Greens both likely to oppose these measures.
The eventual outlook for the proposed tax cuts for higher income earners, spread over the future estimates will be entirely dependent on the Coalition winning the next Australian Federal Election, which can be called at any point from August 2018 but must take place by mid-May 2019.
Current opinion polls indicate that the Labor Party would win a small majority were an election to be held today, but the Coalition has been steadily improving its performance since late 2017, and Australia’s preferential voting system and the recent proliferation of minor parties could well produce another upset result.