13 May 2015
This budget is more in keeping with an ALP budget, which will make it hard for Labor to block in the Senate.
It is a cash splash limited only by the imagination. It will cost billions of dollars and it is the centrepiece of the government’s get-out-of-jail budget as it looks to shore up votes ahead of an election next year.
From 7.30pm on budget night, Australians operating small businesses – and there are millions of them – were invited to go on a spending binge for two years to stimulate the economy. If this doesn’t pull the government out of the poll doldrums, nothing will.
It has been labelled the make or break budget and it is. It is a stimulus package masquerading as a “prudent approach to spending” to get the economy back on the road to a surplus amid soft commodity prices and falling tax revenue.
It is hard to believe this is the same government that wrote last year’s “budget emergency” that split the population into “lifters” and “leaners” and called an end to “the age of entitlement”.
The small business package has been costed at $5.5 billion but it could be far more if Australians let their imaginations run wild to the endless lurks and perks Treasurer Joe Hockey is serving up as part of a grand buffet of stimulus offerings. They include an immediate tax deduction on asset purchases of up to $20,000 – applied to an unlimited amount of purchases. Everything, literally including the kitchen sink, is available for a tax deduction for businesses that earn less than $2 million a year in revenue. You don’t have to have a company, just an ABN.
Australians will be tripping over themselves to set up a new business to qualify for the generous tax deductions and cuts to tax rates.
As the Treasurer said in his speech: “If you run a cafe, it might be new kitchen equipment, or new tables and chairs. If you’re a tradie, it might be new tools or a computer for the home office. Cars and vans, kitchens or machinery … anything under $20,000 is immediately 100 per cent tax deductible from tonight.”
You can almost hear the tills ringing – and share prices surging – at JB Hi- Fi, Bunnings, Myer, Officeworks and any other business that sells a product that can be claimed by a small business as a tax deduction. Goodness knows some of the retailers need the extra spending but the intent is more widespread than that. Put simply, if the package does its job it will have a multiplier effect that will lift business confidence and consumer confidence, both of which have proved stubbornly difficult to move.
Whether the package is sensible, doesn’t come into it. It is all about politics.
As Goldman Sachs economist Tim Toohey recently said: “The economic orthodoxy so prevalent in Australia over the past 20 years of deficit and debt reduction at all costs has been shaken.”
This is a budget with lots of carrots for middle Australia and a big stick for tax dodgers and people getting concessions they are rich enough not to need.
The Coalition’s second budget promised to be “dull”. This is anything but dull. With the political careers of Prime Minister Tony Abbott and the rest of the party on the line, it needed to pull a rabbit out of the hat to win back the hearts and minds of middle Australia.
It includes the removal of fringe benefit tax on all portable electronic devices used for work, which again will help small businesses and provide yet another boon for retailers. And it is aimed at winning back families by spending $3.5 billion in extra funding for childcare, offering financial incentives to encourage businesses to hire people over 50, and changes to pension eligibility tests to help poor pensioners.
Oh, and there is a dollop of vision thrown in for good measure in the form of a $5 billion Northern Australia Infrastructure Facility (something pushed strongly by billionaire miner Gina Rinehart, a close friend of the Prime Minister’s).
It also includes integrity measures initially aimed at 30 big companies that appear to not have been paying their fair share of tax.
“We will build on the work I initiated last year in the G20,” the Treasurer said. “We are leading the world in tax integrity.”
He was referring to companies including Google and Apple that have been fingered for their complex corporate structures designed to minimise tax. At a time when countries are suffering from dwindling tax revenue and soaring debt, pinging tax avoiders is an easy political win. There is big money involved. The Economist estimated that elaborate tax structures such as those adopted by Apple and Google have helped American companies amass an estimated $US1.9 trillion ($2.4 trillion) offshore, safe from the US tax office.
For now, the Abbott government is about trying to keep everyone happy. This is no easy task at the same time as there is pressure on the government to demonstrate a credible path back to surplus. If not, the country’s credit rating could be negatively impacted and consumer and business confidence could continue to fall. With a sprinkle of bullish economic forecasts – more bullish than the Reserve Bank’s – it has painted a scenario in which a budget deficit that stands at $41 billion in 2015 falls each year in the next four years to just under $7 billion in 2018-19.
There is no question the budget deficit needs to be reduced over time, along with net debt. But the government has learnt the hard way that trying to do this too fast can hurt confidence – and its popularity. It is why this budget is more in keeping with an ALP budget, which will make it hard for Labor to block in the Senate. It carries some of the hallmarks of the stimulus package released during the global financial crisis by the then Rudd government. Whether it results in some of the same abuse, time will tell.
Courtesy of the Canberra Times
13 May 2015