Bought forward and only weeks away from the federal election, the budget released by Prime Minister Scott Morrison and Treasurer Josh Frydenberg is likely to be revised should the Coalition be returned to government, or recast significantly should Labor take office.
Nevertheless, it serves as a useful guide as to the issues that are likely to hold prominence over the coming election campaign.
- Headline takeaways:
The budget is forecast to return an underlying cash surplus of $7.1 billion in 2019-20, equal to 0.4 per cent of GDP.
- Small and medium sized businesses are being enticed with lower taxes and an expansion of the instant asset write-off scheme.
- $100 billion infrastructure program planned over next 10 years, with significant investment in roads, rail and mitigating congestion.
Industry specific takeaways:
- $525.3 million in funding for vocational education and training with the aim of delivering additional apprentices for occupations facing shortages of skilled workers, including plumbers. Employers will be eligible for an additional $4,000 payment, and apprentices will be eligible for $2,000 paid at key milestones in the apprenticeship.
- Funding for social infrastructure that will result directly in building activity includes $100 million allocated for a Comprehensive Children’s Cancer Centre at Sydney Children’s Hospital; $80 million to establish a Centre of Excellence in Cellular Immunotherapy in Victoria; and $60 million for a capital works program will help aged care providers to construct new, or upgrade existing, residential services
- $79.2 million has been allocated for new energy efficiency measures, including $50 million in grants to eligible businesses and community organisations.
There were several good announcements for small and medium sized enterprises, with a lower tax rate and instant asset write-downs to directly benefit around 3.4 million businesses economy-wide.
The government’s investment in VET is also welcome, albeit an absolute necessity given the amount of infrastructure funding that is likely to increase the risk of skills shortages across the broader building and construction industry.
We would’ve liked to see more funding allocated for the digitisation of built environment and, similar to the funding provided to ASIC for oversight of the banking sector, we’d like to see a greater commitment to the monitoring of unfair contracts by the Australian Competition and Consumer Commission.
The Australian economy is sound rather than strong, with an unemployment rate of 4.9 per cent and the Real GDP expected to grow at around 2.75 per cent in both 2019-20 and 2020-21. Economic drivers include growth in business investment, exports and the rollout of major public infrastructure projects.
Potential risks to the economy include:
- Uncertainty about the housing market
- Subdued outlook for household income
- Tightening in credit conditions which could constrain household spending amid high levels of household debt.
- Ongoing trade tensions between the United States and China, as well as risks associated with Brexit
- Emerging market debt vulnerabilities and geopolitical issues.
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The budget is forecast to return an underlying cash surplus of $7.1 billion in 2019-20, equal to 0.4 per cent of GDP. The net operating balance is forecast to reach a surplus of $12.9 billion (0.6 per cent of GDP) in 2019-20 and maintain sustainable surpluses over the forward estimates. This means that the Government’s recurrent spending is more than funded by revenue over the forward estimates.
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Business and Industry
Approaching the federal election, the Coalition has appealed to small and medium sized business with a mix of policy measures aimed at reducing the tax burden, encouraging investment and making the tax system fairer.
Lower taxes for SMEs
Companies with an aggregated annual turnover below $50 million will see a decline in their tax rate over the next few years, falling from 27.5 per cent this year, to 26 per cent in 2020-21 and 25 per cent in 2021-22. This means lower taxes for around 3.4 million small and medium-sized businesses.
Instant asset write-off
The Government is increasing the instant asset write-off threshold for eligible assets to $30,000. It is also expanding access to medium-sized businesses by increasing the aggregated annual turnover threshold for eligibility from $10 million to $50 million. The threshold applies on a per asset basis, so eligible businesses can instantly write off multiple assets.
Support for small Business in tax disputes
$57.5 million has been allocated over five years to provide access to a fast, low cost, independent review mechanism for small businesses in dispute with the ATO.
Mitigating tax avoidance
Extension and expansion of the ATO Tax Avoidance Taskforce on Large Corporates, Multinationals and High Wealth Individuals with $1 billion in additional funding to the ATO to extend the operation of the Tax Avoidance Taskforce.
The Australian Government has committed $100 billion in funding for its infrastructure plan over the next decade; however, there is a lack of clarity around which projects form part of the program with a large portion of funding commitments beyond the forward estimates.
- $2 billion to help deliver a fast rail connection between Geelong and Melbourne.
- Co-funding for five business cases with state governments for fast rail from Sydney to Wollongong, Sydney to Parkes, Melbourne to Albury-Wodonga, Melbourne to Traralgon, and Brisbane to the Gold Coast.
- An additional $3 billion to the Urban Congestion Fund, increasing total funding to $4 billion. This will include $500 million for a Commuter Car Park Fund, which will improve access to public transport by funding park and ride facilities at rail stations.
- $2.2 billion for a Local and State Government Road Safety Package, which includes an additional $1.1 billion for the Roads to Recovery Program; $550 million for the Black Spots Program; $275 million for the Heavy Vehicle Safety and Productivity Program; and $275 million for the Bridges Renewal Program.
- $1 billion is being provided for the next phase of the Roads of Strategic Importance initiative, increasing total funding to $4.5 billion. This includes further investment in strategic corridors, associated feeder roads and other rural roads across the country.
- The Princes Highway will receive further investment of $1 billion across New South Wales, Victoria and South Australia.
State project funding
New South Wales will receive an additional $6.1 billion for projects including $1.6 billion for the M1 Pacific Motorway Extension to Raymond Terrace and $400 million to upgrade the Newell Highway.
Victoria will receive an additional $2.8 billion for projects including $1.1 billion for upgrades of southeastern and northern suburban roads and $700 million for a rail upgrade from South Geelong to Waurn Ponds (Stages 2 and 3).
Queensland will receive an additional $2.6 billion for projects including $800 million for upgrades to the Gateway Motorway between Bracken Ridge and Pine River and $500 million to ease congestion and improve safety on the M1 from Daisy Hill to the Logan Motorway.
South Australia will receive an additional $1.8 billion for projects including $1.5 billion for the North-South Corridor and $260 million for a South Australia Regional Roads Package.
Western Australia will receive an additional $933 million for projects including $349 million for Tonkin Highway upgrades and $140 million for construction of stages 2 and 3 of the Albany Ring Road.
Tasmania will receive an additional $68 million for the Tasmanian Freight Rail Revitalisation Program – Tranche 3.
Australian Capital Territory will receive an additional $50 million for projects with $20 million for the duplication of William Slim Drive. The ACT and NSW will benefit from a $30 million upgrade of the Kings Highway.
The Northern Territory will receive an additional $60 million for Tiwi Island Road upgrades.
While much of this budget’s infrastructure spending is targeted at roads, rail and freight, several announcements will directly result in building activity:
The $1.3 billion Community Health and Hospitals Program aims to boost health services across Australia, including the improvement of existing facilities and the establishment of centres of excellence
$100 million is allocated for a Comprehensive Children’s Cancer Centre at Sydney Children’s Hospital and
$80 million to establish a Centre of Excellence in Cellular Immunotherapy in Victoria
The Government will invest $5 billion as part of its Ten Year Investment Plan for the Medical Research Future Fund, including $605 million in funding for infrastructure to support medical research.
A $60 million capital works program will help aged care providers to construct new, or upgrade existing, residential services — with a particular focus on rural and regional locations.
City and Regional Deals
Building on the success of the City Deals model, which currently totals around $5.6 billion of investment, the Government has allocated additional funding to Geelong, and Hobart, while rolling out Regional Deals in the Barkly Region in the Northern Territory and the Hinkler Region in Queensland.
- Adelaide City Deal (funding already budgeted)
- Albury-Wodonga Regional Deal ($3.2 million)
- Barkly Regional Deal ($45.4 million)
- Geelong City Deal ($30 million additional funding)
- Hinkler Regional Deal ($71 million), and
- Hobart City Deal ($30 million additional funding).
Energy and Environment
Government spending in this year’s budget aims to make energy more affordable and reliable, while helping Australia meet its greenhouse gas reduction targets under the Kyoto Protocol and Paris Agreement.
- $3.5 billion has been allocated for a new Climate Solutions Package, including $2 billion for a Climate Solutions Fund to support projects that will diversify regional economies and help reduce emissions.
- $79.2 million has been allocated for new energy efficiency measures, including $50 million in grants to eligible businesses and community organisations
- $284 million will be available for a one-off, income tax exempt payment to over 3.9 million Australians to assist targeted recipients with power bills and cost of living pressures.
- The Commonwealth is partnering with the Tasmanian Government to unlock additional hydro storage potential through the Battery of the Nation initiative and providing $56 million to link that capability to the mainland through the Marinus Link interconnector.
- A Priority Transmission Taskforce will also be established to support timely delivery of the Australian Energy Market Operator’s recommended transmission projects from its Integrated System Plan.
- Up to $1.4 billion of equity is allocated for the Snowy 2.0 project with the remainder of the project to be financed by Snowy Hydro Limited.
- $3.5 million has been committed to progress the Underwriting New Generation Initiative for a shortlist of projects across a range of technology types.
- $10 million to conduct detailed evaluation and feasibility of projects in North and Central Queensland through the Underwriting New Generation Investments program.
Skills and Training
The Government’s plan for a stronger economy includes a new skills package that responds to the recently delivered Expert Review of Australia’s vocational education and training system.
The Delivering Skills for Today and Tomorrow package will invest $525.3 million over five years to deliver 80,000 additional apprentices in occupations facing shortages of skilled workers, including plumbers.
- Employers will be eligible for an additional $4,000 payment, and apprentices will be eligible for $2,000 paid at key milestones in the apprenticeship. The list of eligible occupations will be reviewed annually to capture contemporary skill shortages as they emerge.
- A new National Skills Commission will be established to work with states and territories to deliver a nation-wide approach to skills development, serving the needs of both students and industry.
- A pilot of Skills Organisations will develop training packages for high demand skills, including in information and communications technology, healthcare, cyber security and aged and disability care.
- Training Hubs will be piloted in ten regional areas with high youth unemployment, to support students to complete their secondary education and access training relevant to industries facing skill shortages.
- The Government is establishing a new foundational literacy, language, numeracy and digital skills program, to equip individuals with the skills they need to move into further education or employment.