The Turnbull government is shifting itself on to a pre-election footing, declaring that next week’s budget will demonstrate the Coalition’s economic plan is working and also highlight the risks of a change to a Labor government.
The treasurer, Scott Morrison, and the finance minister, Mathias Cormann, have emphasised that message before next week’s economic statement, which is expected to deliver income-tax cuts, a significant infrastructure spend, and investments in aged care and health, including a modest rise in the Medicare levyfor GP visits.
Following on from a decision last month to dump an $8bn increase in the Medicare levy that was supposed to help fund the national disability insurance scheme, there is also speculation the government will use the budget to ditch a decision to scrap an energy supplement implemented at the time Labor legislated the carbon price.
Cormann made it clear on Friday the government would persist in trying to land its politically unpopular tax cut for big business, despite the complications posed by damaging revelations in the banking royal commission.
The centrepiece of next Tuesday’s budget is expected to be personal income-tax cuts, with speculative reports saying these will be spread over 10 years with a modest start. Labor has already indicated it will offer voters something similar by way of tax relief.
Australia’s resources groups expect the Coalition will – apart from keeping the proposed tax cuts for big companies despite the lack of parliamentary support – use the budget to adjust the uplift rate of the Petroleum Resources Rent Tax – a shift that could affect deductions that gas companies can carry forward.
The government has also confirmed it will change the rules so that all beer kegs larger than eight litres will be taxed at the same rate, a decision costing the budget $85m over the forward estimates. Large beer producers have previously enjoyed more advantageous tax treatment than craft brewers.
On Friday, Morrison could not guarantee the price of craft beer would decrease as a result of the change, but he said he was “taking the tax monkey off the brewer’s back and the distiller’s back all around the country because I want to see those businesses grow”.
In the countdown to the budget, there has been a debate inside the government about winding back current levels of migration on the basis that Australia’s big cities are too congested, and infrastructure is not keeping pace.
The prime minister and the treasurer have been resisting calls to cut the immigration rate, and have stepped up the public focus on infrastructure projects, including $5bn to help construct the long-awaited rail link from Melbourne’s Tullamarine rail link to the city.
In the run-up to Tuesday night’s budget, Malcolm Turnbull has unveiled a $3.2bn infrastructure package for Western Australia, where the Coalition has been in trouble politically. It includes $1.67bn for road projects, an extra $1.05bn for Metronet, $189m for hospital infrastructure and $140m for a water project.
With Queensland being critical to the government’s electoral fortunes federally, given the swag of marginal seats in the state, there has also been a Queensland package, including $800m for a rail upgrade on the Sunshine Coast, and $1bn for an upgrade of the M1 motorway on the Gold Coast.
As well as road and rail investments, on Friday, the government confirmed that $140m would be set aside from 2019-20 for a location incentive to attract blockbuster films for production in facilities on the Gold Cast. The proposal will increase the location offset rate from 16.5% to 30% for eligible large budget international productions that film in Australia from 1 July 2018.
The government also committed $155m this week for a four-lane bridge over the Shoalhaven river at Nowra, in the marginal seat of Gilmore in New South Wales. The Liberals hold that seat with a wafer-thin margin of 0.73%.
Rivers of revenue ‘gold’ and return to surplus
With the economy finally turning a corner, Morrison used a speech delivered in late April to confirm the 2018 budget would benefit from stronger than expected revenue collections.
He noted that tax receipts until February were running $4.8bn higher than forecast by the Treasury last December, including a $1.2bn boost to income-tax receipts and a $3bn increase on company tax. “Our economy is finally shaking off the dulling effects of the downturn in the mining investment boom,” he said.
The respected forecaster Chris Richardson predicts that revenue in 2017-18 will beat the official forecasts by $7.6bn and in 2018-19 by $6.7bn. This improvement translates to underlying cash deficits of $16.6bn in 2017-18 and $13.3bn in 2018-19.
While there has been speculation that the budget may include an earlier return to surplus than the forecast time of 2020-21 despite the big outlay on personal tax cuts – Morrison has refused to guarantee that the government will run budget surpluses of at least 1% of GDP, which has been the Coalition’s previous commitment.