Statement 1: Budget Overview
As Australia continues its transition to broader‑based growth, the 2016‑17 Budget remains focused on jobs and growth. This Budget also reinforces the ongoing commitment to control spending to put the Budget on a sustainable foundation for the future. Excluding tax integrity measures, the Government is reducing the tax burden by around $1.9 billion over the forward estimates.
The Australian economy is forecast to strengthen over the next few years — with historically low interest rates and a lower exchange rate supporting growth in household consumption and exports. However, expectations for global growth are lower than at the 2015‑16 MYEFO and the global environment remains uncertain, providing risks to the forecasts of Australia's economic growth.
This Budget sets out the Government's economic plan to ensure Australia continues to successfully transition from the mining investment boom to a stronger, more diversified, new economy in three key ways.
First, by sticking to the Government's plan for jobs and growth through:
- a ten year enterprise tax plan that will boost new investment, create and support jobs and increase real wages, starting with tax cuts for small and medium‑sized enterprises, that will permanently increase the size of the economy by just over one per cent in the long term;
- continued investment in the national innovation and science agenda, including support for new start‑up businesses;
- securing an advanced local defence manufacturing industry through the twenty year defence industry plan, driving new high‑tech jobs in Australia, including 3,600 direct jobs as part of the Government's naval shipbuilding programme;
- opening up more export opportunities through trade agreements that are already delivering new jobs and markets for Australian producers, manufacturers and service providers; and
- working to get more than 100,000 vulnerable young people into jobs in the growing Australian economy by giving them real work experience with real employers that leads to real jobs.
Second, by fixing problems in the tax system to enable us to sustainably cover the Government's responsibilities for the next generation by:
- combatting tax avoidance, especially by multinational corporations, to ensure everyone pays the tax they should on what they earn in Australia;
- closing off generous superannuation tax concessions for Australia's most wealthy and better targeting superannuation tax concessions to support working Australians build independent wealth for their retirement; and
- giving hard working Australians and the Australian businesses that employ them greater tax cuts to earn more without being taxed more.
And third, ensuring that the Government lives within its means, to balance the budget and reduce the burden of long‑term debt by:
- continuing to keep government spending growth under control and to ensure spending is as efficient, effective and well‑targeted as possible;
- targeting welfare abuse to ensure the social safety net is there for Australia's most vulnerable, in particular those with disabilities; and
- responsibly investing in infrastructure like roads, rail, dams and public transport and guaranteeing real, affordable funding for health and education services that Australians rely on.
The underlying cash balance is expected to improve in each year over the forward estimates notwithstanding a softening in the fiscal outlook compared with the mid‑year update. While revenue continues to increase, tax receipts are lower than expected. Despite this, the Government has maintained fiscal discipline. Policy decisions improve the underlying cash balance over the forward estimates, with the Government paying for all new spending with spending reductions in other parts of the Budget.
Although the payments‑to‑GDP ratio remains above its historical average, it has plateaued and will decrease across the forward estimates. The Government will continue to prioritise spending restraint, consistent with its strategy of returning to surplus as soon as possible and lowering the tax burden over time.
The Australian economy is entering its 26th year of economic expansion and is forecast to strengthen over the next few years. Real GDP is forecast to grow by 2½ per cent in both 2015‑16 and 2016‑17, before strengthening to 3 per cent in 2017‑18.
The transition from the mining investment boom to broader‑based growth continues. Falling mining investment is being offset by solid growth in consumption, dwelling investment and exports. The transition is clearly evident in the labour market, with strong employment growth, particularly in the service sectors.
An uncertain global environment, however, continues to pose risks to the Australian economy. Most significantly for Australia, there are uncertainties around the transition facing the Chinese economy; the possibility of renewed volatility in financial markets; and risks that low inflation, wage growth and productivity growth being experienced in many advanced economies could become embedded in lower potential global growth over time.
The underlying cash deficit is expected to be $37.1 billion in 2016‑17 and improve over the forward estimates. The average annual pace of fiscal consolidation is consistent with the 2015‑16 MYEFO at 0.4 per cent of GDP.
Payments as a proportion of GDP are forecast to fall to 25.2 per cent by the end of the forward estimates before rising slightly and remaining stable over the medium term.
|Underlying cash balance ($b)(b)||-37.9||-39.9||-37.1||-26.1||-15.4||-6.0||-84.6|
|Per cent of GDP||-2.4||-2.4||-2.2||-1.4||-0.8||-0.3|
|Fiscal balance ($b)||-39.9||-39.4||-37.1||-18.7||-9.8||-2.1||-67.7|
|Per cent of GDP||-2.5||-2.4||-2.2||-1.0||-0.5||-0.1|
(a) Total is equal to the sum of amounts from 2016‑17 to 2019‑20.
(b) Excludes net Future Fund earnings.
Net debt as a share of GDP is expected to peak in 2017‑18 before declining over the remainder of the forward estimates. By 2026-27, net debt is projected to fall to 9.1 per cent of GDP.
The Government remains committed to its medium‑term fiscal strategy of achieving a sustainable surplus, building to at least one per cent of GDP as soon as possible by continuing to keep downward pressure on payments growth, consistent with budget repair. The overall tax burden in this Budget is not being increased as a result of policy changes taken by the Government. Excluding tax integrity measures, the Government is reducing the tax burden by around $1.9 billion over the forward estimates.
This year's Budget focuses on building a stronger economy to create jobs and growth in a transitioning economy.
Together the changes to superannuation and the ten year enterprise tax plan will boost the economy whilst improving sustainability and integrity.
The superannuation changes will improve the sustainability, flexibility and integrity of the superannuation system. Superannuation tax concessions will be better targeted to those who need incentives to save. The flexibility of the superannuation system will be improved, recognising that individuals have different working patterns across their lives. Confidence in the superannuation system will be increased by reducing the extent that superannuation is used for tax minimisation and estate planning purposes.
The ten year enterprise tax plan will support growth, higher wages and jobs by lowering the company tax rate over time to an internationally competitive level. This will come with early cuts for smaller and medium‑sized businesses and measures that expand the coverage of small business concessions.
At the same time, all businesses must pay their fair share of tax. Multinational corporations that attempt to avoid tax by shifting profits offshore will be subject to targeted anti‑avoidance measures and high penalties. The Government will also protect wage earners who would otherwise move into the second top tax bracket by increasing the 32.5 per cent tax threshold from $80,000 to $87,000.
While youth unemployment has fallen to its long‑term average, the Government is implementing measures to achieve a sustained reduction. The Government is committed to ensuring young working‑age Australians have the skills and opportunities to be more competitive in the labour market. The Youth Jobs PaTH Programme will target job seekers under 25 years of age and comprises three stages that focus on increasing skills that improve employability, internships to deliver practical experience and financial incentives to both employers and job seekers.
Other budget priorities include investing record amounts in productivity‑enhancing infrastructure, keeping Australians safe by providing over $30 billion in new funding for national security and supporting hospitals and schools. The defence industry transformation plan will create opportunities for Australian defence manufacturing industries for the next 20 years; while Australia's export trade agreements will contribute to delivering jobs and growth in the expanding export sector.