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The Federal Budget 2017

The Federal Budget 2017

The 2017 Federal Budget was delivered by Treasurer Scott Morrison on Tuesday 9 May 2017. Its supporters have labelled it as being “fair and responsible” and about making the “right choices” for the economy. The budget has infrastructure and housing affordability as the centerpieces as many of the policy proposals relate to these goals.

Its critics will say it is a big taxing, big spending budget and in many ways, it is a Labor lite budget instead of being a true conservative budget. Their main concern is that this budget does nothing to fix Australia’s ballooning debt problem.

Key Announcements

The federal budget had a number of significant announcements:

Click on the points below to learn more about how some of the key measures announced will affect you:

Infrastructure

The infrastructure proposals are being touted as the most ambitious in a generation, calling it “good debt” or an “investment” as the projects offer potential capital returns. The Government has committed $75 billion in infrastructure funding and financing over the next 10 years. The highest profile infrastructure commitment is the $5.3 billion (debt funded) proposal to build Sydney’s second airport at Badgerys Creek. The Government expects the airport to be delivered in 2026 and create an estimated 20,000 jobs by the early 2030s. The Sydney Airport Group decided to not take up the project citing “it would be too great of a financial risk for their investors”, so the Government decided to take full control of the project. However, with the private sector deeming the project too risky, it begs the question: is this project going to provide value for the tax payer dollar?

Click here to learn more about the proposed big infrastructure projects.

Housing Affordability

Housing affordability is the other key focus of the 2017 budget. The Government has indicated that the following measures should help increase housing supply and affordability:

Housing supply and affordability is a difficult issue for the Government to tackle. It remains to be seen whether these initiatives will be beneficial and to whom.

Bank Tax

One of the more controversial measures proposed in the budget is the 0.06 percent levy on the liabilities affecting the major banks. It is estimated this levy will generate $6.2 billion over four years and help bring down the deficit. It has been billed as a fair contribution from the profitable banks and that it may create a more level playing field for the banking sector and encourage greater competition. This measure has been supported by the Labor Party and is likely to pass, however it does raise some concerns, mainly the strong likelihood that the tax will be passed onto the consumer and concerns from a sovereign risk point of view.

Click here to learn more about the proposed bank tax.

Social Security

In keeping with the theme that this budget is “fair and responsible”, a subtle hint this is not a 2014-esk budget, the Government has proposed:

  • Increasing the Medicare Levy by 0.5% to 2.5%
    The purpose of the increase is to help fund the national disability insurance scheme, Treasurer Scott Morrison stating that “even if we are not impacted directly, this is all our responsibility”, however it does mean that all Australians are paying more tax.
  • Energy Assistance Payment
    This is a one-off payment to help those who qualify (those on pensions) with the cost of energy.
  • Child Care Rebate – Upper Income Threshold
    The government has proposed investing $37.3 billion in child care over four years. This measure will be payable to families with incomes below $350,000.

Australia’s National Debt

The Government’s budget, although it has its merits, does not do much at all to address the growing concern of many economists that we are spending too much as a nation. On budget day, while the media were in budget lock up, the Treasurer used his powers to increase Australia’s National debt limit to $600 billion. As our budget position continues to deteriorate every year our national debt is increasing by $88,000 per minute or $41,000,000 per day.

It is now at a staggering $577 billion. Our increased debt, increases our risk of losing Australia’s AAA credit rating. Any loss of Australia’s AAA credit rating would be a “tax on growth” and would have an impact on all Australians on their borrowings as interest rates would increase.

To see Australia’s debt in action go to www.australiandebtclock.com.au

Budget Surplus – Budget Deficits

The Treasurer is still forecasting a $7.4 billion surplus in 2020-21 with the projected deficit for 2017-18 revised slightly up to $29.4 billion. What we borrow at some point, must be paid back. According to Chris Richardson of Deloitte Economics “If you’re going to cut spending it’s going to be painful and there will be people who will be disappointed”. These decisions require political courage as they will not be popular, yet it appears that both sides of politics are not prepared to do what needs to be done to fix it. It is us and our children that will, at some point, feel the consequences of inaction.

It is important to note that the budget announcements are still only proposals at this stage and will depend on them being legislated.

Click on the points below to learn more about how some of the key measures announced will affect you:

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