The Australian Federal Labor Party has broken virtually every significant promise made before the last election, and are now a hair’s breadth from being the most unpopular they’ve ever been. Whilst they’d never admit it publicly, they haven’t got a snowball’s chance in hell of being re-elected when voters head back to the booths next year and, behind closed doors, they’re well aware of it. And when you look at last night’s Federal Budget, it’s clear that all they’re worried about is political tactics to try and get themselves back into office sometime in the next decade.
The one ‘promise’ which we might have forgiven them for ‘breaking’ would be the undertaking to deliver a surplus budget. Whilst I’m a great advocate for Government’s living within their means (and I loved Joe Hockey’s speech on this topic just a few weeks ago), it’s critical that the transition is strategically planned to ensure the economy is not stifled in the process. The 2012-13 budget does nothing to encourage the economy and jobs, whilst grabbing money out of the vast majority of middle-income earner’s pockets, and delivering only the slimmest of surpluses on paper, with future surplus forecasts existing only on paper, based around overly-optimistic projections.
Essentially, Labor has done nothing to tighten their belt. They’ve brought in several billion of revenues from the ‘mineral rent’ tax and carbon tax, magically predicted an increase in company and personal taxes (9% and 8% respectively), splashed some cash on welfare (an age-old pre-election gimmick), and shifted expenditure forwards and backwards so it doesn’t show up in 2012-13. As correctly highlighted by Tony Abbott, why does a Government that’s genuinely reining in spending and heading towards a surplus need to increase it’s debt ceiling by 50 billion dollars? Because it’s going to spend more during this financial year (yes, we’re expecting a deficit of $44 billion, a $7 billion increase on the forecast only six months ago). It’s also deferring spending until 2013-14, when it will no longer be their problem and they can hiss and boo at Liberal for cutting expenditures which they’ve budgeted.
Despite claiming that they would have to find major savings in this budget, they’ve found minimal savings and have actually increased expenditure by $201 million – instead they’ve focussed on more income.
Key features of the budget include:
- Tax-free threshold increases from $6,000 to $18,200, but thereafter the 15% marginal rate has been increased to 19% and between $37,000 to $80,000 income the marginal tax rate shifts from 30% up to 32.5%
- Means testing of private health insurance rebate will cost middle-income earners, particularly singles on incomes between $84,000 – $130,000, a total of $1.26 billion
- Promised company tax cuts (from 30% to 29%) have been scrapped, however on the positive side companies will now be able to ‘carry back’ losses, meaning that they can claim a refund on tax losses in the 2012-13 financial year against taxes paid in the previous year (up to a maximum refund of $300,000). On paper, these losses can be carried back two years from 2013-14, but of course this is another sweetener which may not be sustainable and will inevitably be used to taunt the Liberals once they’re in Government.
- $1.1 billion of local Government grants which were due to be paid in 2012-13 pulled forward to the current financial year to help achieve their surplus objective
- Unemployment figures revised down to 5.25% for 2012-13, but then back up to 5.5% and steady for future years (the short-term figures serve multiple purposes including reducing the budget cost of welfare, increasing the projected income tax revenues, and allowing Labor to claim the economy is strong)
- Carbon Tax revenue projections based on ‘greenhouse gas emitting companies’ continuing to emit the same levels of CO rather than any reduction in emissions – which begs the question does the Government believe it’s own rhetoric about the Carbon Tax creating the necessary incentive for companies to invest in cleaner technologies and reducing their emissions
- CPI for current period revised down to 1.25% from Labor’s own forecast of 2.25% in November last year, and well below the Reserve Bank’s target of 2-3%. Very handy if you want those struggling financially to believe their cost of living isn’t increasing too dramatically.
- Real GDP is expected to grow to 3.25% in 2013, a stronger figure than the Reserve Bank’s projection of 2.5-3%.
- Deferred a promised increase in the cap on personal superannuation contributions (we can currently pay only 15% tax on the first $25,000 of our personal contributions and that’s being retained despite a promise to increase it to $50,000) – if the Government was serious about the long-term economic well-being of our country, they’d be focussing on initiatives like this which reduce the need for the Government to provide pensions/welfare to our elderly. Deferring this tax break is a clear sign that they’re focussed on short-term political point scoring.
- The Government “plans” to increase the Superannuation Guarantee to 12% by 2019-20 – a plan so far ahead that it’s laughable they’ll be in any position to actually deliver on that, but that allows them to claim to be doing something about retirement savings
- $1 billion dollars towards the National Disability Insurance Scheme
- ‘Golden handshakes’ no longer get a tax break above $180,000 total income
- Assistance to SME businesses in the form of an increased threshold to write off any asset purchases up to $6,500 in the year of purchase, and $5,000 rebate on the purchase of new and used cars from fiscal year 2013.
- Scrapping of tax breaks for ‘Green Buildings’ program (worth $405 million over four years).
- ‘Connecting Renewables to the Grid’ expenditure pushed out to 2018-19 and 2019-20.
- Solar Hot Water initiative scrapped
In summary, this is a budget which increases taxes, increases spending, projects flimsy surpluses that only exist on paper at this point, demonstrate no belief in their own carbon reduction policies, provide no incentives to encourage business and the economy, and most importantly for Labor, moves an imaginary line to an unattainable position so that any prudent decisions made by the Liberal Party when they take over Government in the near future can be attacked for political points.