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Part III: Budget Priorities
In framing the 2000-01 Budget, the Government has given priority to delivering on its commitment to reform the Australian taxation system, including providing for the largest income tax cuts in Australia's history. Priority has also been given to a range of key measures to improve living standards and future economic prospects, particularly in rural and regional Australia.
- Key measures in this Budget will benefit rural and regional Australia through improving rural and regional health services and assisting the rural sector to become more innovative, profitable and sustainable.
- Other key measures will enhance family and community life, fund a number of high priority defence projects and facilitate the transition to digital television services.
Strong economic growth, together with ongoing scrutiny of the efficiency and effectiveness of service delivery, has helped to ensure that surpluses can be maintained and net debt reduced while increased resources can be directed to priority areas.
Reform of the tax system is essential for Australia to compete and prosper in a competitive world economy. Importantly, tax reform will also ensure that there is a sustainable revenue base so that government can continue to deliver essential services to the Australian community.
The introduction of The New Tax System on 1 July 2000 will deliver to Australians income tax cuts worth $12 billion a year. More than 80 per cent of taxpayers will face a top marginal tax rate of just 30 per cent or less. All pensions and allowances will be increased by 4 per cent, and are guaranteed to remain 2 per cent above what they otherwise would have been. Furthermore, family benefits will be increased by $2.4 billion a year.
The New Tax System replaces a range of inefficient indirect taxes, including the wholesale sales tax and various State taxes and duties, with the Goods and Services Tax (GST). All GST revenue will belong to the States. GST-free status will apply in a number of areas, including fresh and basic foods, most health services, education and exports. In addition, local government rates will not be subject to GST.
To help in the transition to The New Tax System, the Government is delivering a $500 million assistance programme to small and medium businesses, community groups and education bodies.
In addition, to ensure that the prices of goods and services are adjusted properly following the introduction of the GST, price monitoring will be undertaken by the Australian Competition and Consumer Commission (ACCC). Additional funding is being provided to the ACCC in this Budget to expand its monitoring of prices and to assist with covering its legal expenses.
The Government is also in the process of implementing The New Business Tax System, in response to the recommendations of the Ralph Committee. These reforms will provide Australia with internationally competitive business tax arrangements, which will create the environment for achieving higher economic growth, more jobs and improved saving.
The New Business Tax System will give Australia one of the lowest company tax rates in the region. The company tax rate has been reduced to 34 per cent for the 2000-01 income tax year, and will fall to 30 per cent thereafter. This is being funded, in part, by the replacement (except for small business) of accelerated depreciation arrangements with an effective life system.
Incentives to save and invest have been improved with the introduction of an internationally competitive capital gains tax regime. For individuals, only 50 per cent of net capital gains on assets, owned for at least 12 months, are now taxed, while, for individual small business taxpayers, 75 per cent on any capital gain on active business assets owned for at least 12 months is now exempt from capital gains tax.
Additional funding has also been provided in this Budget for the implementation of the business tax reforms, including additional resources for the ATO to cover administration and systems costs.
Reform of Commonwealth-State Relations
In June 1999, Commonwealth, State and Territory Heads of Government endorsed the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations. The Agreement provides the States with all GST revenues, thereby reducing their reliance on Commonwealth grants. The Agreement also establishes a timetable for the abolition of a range of inefficient State taxes.
These arrangements will provide the States with access to a more robust source of revenue that will grow over time. The State budgets will be substantially better off over the medium term which will ensure they can continue to provide a sustainable level of public services such as hospital, schools and law enforcement. In 2000-01, the States will receive GST revenues totalling some $24 billion.
Rural and Regional Australia
Rural and regional Australia is an ongoing priority for the Government, with substantial assistance already targeted specifically at the needs and circumstances of regional areas.
In total, an additional $1,828 million in assistance will be provided to rural and regional Australia over the next four years. Key measures are shown in Table 5, with a comprehensive list at Appendix A. Measures in this Budget will: improve rural and regional health; address problems with fuel costs in rural and regional areas; support the competitiveness and profitability of the rural sector; and facilitate the timely introduction of digital television to regional Australia.
The Regional Health Package - More Doctors, Better Services is designed to provide more doctors and better health services in rural areas, at a cost of $562 million over four years.
The number of general practitioner (GP) services in rural and regional areas will be significantly boosted through increasing the number of vocational training places for GPs and also increasing the distribution of training places allocated to rural areas. This will boost the number of GP registrars delivering services in rural and regional Australia by at least 75 in 2000-01 rising to at least 225 in 2002-03. Many of these registrars will be likely to practice in rural and regional Australia after their training has ended.
The package includes a longer-term strategy to increase the number of rural doctors through encouraging students from rural areas to study medicine and for graduates to commit to rural practice. The Government will provide $32 million over four years to create 100 bonded scholarships per year. These scholarships will be offered to new medical students each year in return for a commitment to practice in rural areas for at least six years. Medical graduates who commit to practicing in rural areas will be able to reduce their HECS debt. To enable more students with rural backgrounds to undertake medical training, the number of Rural Australian Medical Undergraduate Scholarships will be doubled.
People in rural areas have difficulty accessing specialist medical services. Funding of $48 million over four years will be provided for a specialist outreach programme that will offer incentives and/or pay travel costs to specialists to conduct outreach specialty work. Funding of $49 million over four years has also been provided to improve access to allied health services such as practice nurses, psychologists and physiotherapists.
The Government will make a significant investment in regional based medical education and infrastructure. Funding has been provided for the establishment of nine new clinical schools and three new University Departments of Rural Health over the next three years. This expansion of medical training facilities in regional Australia will increase the opportunity for medical students to complete training in rural service delivery and enhance support for rural health practitioners.
Underpinning these initiatives is funding to improve the health and aged care infrastructure in the country with 85 additional regional health services and assistance to small rural community hospitals and aged care facilities. Regional health services are a flexible way to deliver medical, community health, mental health and aged care services to smaller communities. In recognition of the important role of pharmacists in rural health infrastructure, extra assistance of around $42 million over four years will also be provided to improve access to quality pharmacy services in rural and remote Australia.
The New Tax System will deliver significant benefits to rural and regional Australia. Consistent with its commitment, the Government will reduce excise on petrol and diesel so that the pump price of these commodities for consumers need not rise as a result of the introduction of the GST. In addition, the Government will introduce a Fuels sales grants scheme from 1 July 2000 to reduce the pump price of petrol and diesel in non-metropolitan and remote areas and help address the divergence in fuel prices between city and regional areas. The scheme will cost around $500 million over the next four years and will be tiered to provide a higher grant for sales in remote areas.
Fuel costs for businesses in rural and regional Australia will decrease further due to the availability of credits for GST paid, the expansion of the Diesel Fuel Rebate Scheme (DFRS) and the introduction of the Diesel and Alternative Fuel Grant Scheme (DAFGS). The DFRS will enable eligible business activities, such as agriculture and mining, to claim a full rebate of the diesel excise paid. The DAFGS together with the availability of input tax credits for business, will lower the cost of diesel used in many transport vehicles by around 24 cents per litre. Moreover, The New Tax System will cut the cost of both petrol and diesel for all registered business by about 10 per cent.
The Government will provide funding of $309 million over four years for the continuation and enhancement of the AAA Package. The AAA Package will play a major role in improving the competitiveness, sustainability and profitability of the farming sector, whilst retaining essential elements of social welfare. The package includes a range of initiatives to enhance farmer skills training, encourage innovation, improve market access for our agricultural and food exports and enhance support to families in financial difficulty.
The Government will provide regional and remote commercial television broadcasters with assistance in the digital conversion process from 2000-01 under the Regional Equalisation Plan. Assistance of around $100 million will be provided over the next four years primarily in the form of annual licence fee rebates. Total assistance over the life of the plan will be up to $260 million.
The Government will increase from 50 per cent to 75 per cent the discount for all farm and business assets for the Youth Allowance family assets test. This responds to concerns that the former family assets test may have imposed a disincentive for young people from families with farm and small business assets to continue education and training. In recognition of the high cost of education for people living in remote parts of Australia, the Government is increasing funding under the Assistance for Isolated Children Scheme by $16 million over the next four years.
Table 5: Additional Assistance to Rural and Regional Australia
A Healthy Australia
In addition to the health initiatives in this Budget specifically directed at rural and regional Australia, important measures in the areas of population health and safety and improved medication management will deliver benefits more broadly.
Extra funding has already been announced since MYEFO for public hospitals and nursing homes. Additional funding to the States of around $650 million will be provided over the last four years of the Australian Health Care Agreements. This will further increase the States' capacity to improve public hospital services. The Government has also recently announced that it will provide around $240 million over three years to public and not-for-profit hospitals to assist with the transition to the new fringe benefits tax arrangments. An extra $148 million over six years in residential aged care subsidies will deliver a common rate of subsidy across the States and facilitate improvements in the quality of care.
The 2000-01 Budget provides additional funding of $93 million over four years for population health and safety measures, including for food standards and regulation and significantly reducing the risk of transmission of blood borne diseases though blood and blood products.
Measures in this Budget are designed to improve the management of Pharmaceutical Benefits Scheme (PBS) medications. Consumers will be able to opt into a new electronic medication records arrangement, where those consumers and their practitioners or pharmacists can access their personal medication records and safeguard against potentially dangerous drug interactions. Safety net entitlements for eligible consumers will also be able to be automatically calculated.
As part of the ongoing management of the PBS, and on advice from the Pharmaceutical Benefits Advisory Committee, most nasal sprays will be deleted from the PBS, providing savings of around $62 million over the next four years. More generally, improved pharmaceutical benefits entitlement monitoring is expected to ensure that benefits are not provided inappropriately to persons who are not eligible for the subsidy.
The Department of Veterans' Affairs will assume responsibility for home and community care like services for entitled members of the veteran community. This initiative will increase the number of veterans who receive these services, improving the well-being and independence of veterans through the provision of better targeted support in the home. Non-veterans will also benefit because places will be freed up in the existing Home and Community Care (HACC) programme. HACC is a successful preventive measure aimed at deferring the need for the elderly to enter residential care.
The Government has met its election commitment to respond to the findings of the Vietnam Veterans' Health Study with a package in this Budget that will improve the health of veterans and their family members.
Implementation of The New Tax System will provide significant financial assistance to families through tax cuts, increased family benefits, and reductions in family benefit withdrawal rates.
The recently announced Stronger Families and Communities Strategy will invest an additional $240 million over four years in: early intervention parenting and family relationships support; encouraging community leadership, volunteering and partnerships; helping communities tackle their own challenges; and developing a more thorough understanding of Australian society and its needs. The Strategy has a particular focus on assisting communities in rural and regional Australia.
The major component of this Strategy is an additional $65 million over four years to assist families to fulfill both work and family responsibilities through increased flexibility and choice of childcare. Subsidies for in-home care and incentives for the establishment of child care centres in rural areas where there is a recognised need will be provided. Families who will particularly benefit from this proposal include families working outside standard business hours; families who have a sick child; and families who live in rural and regional areas.
The Budget also includes a package of Child Support measures that will improve post-separation relationships, encourage parents to maintain contact with their children after separation and help payers support the children of their subsequent families. For example, to encourage parents to maintain contact with their children following separation or divorce, the Government will modify the child support formula to recognise the additional costs faced by parents who maintain contact with their children. A specific and transparent allowance for the cost of caring for a child between 10 per cent and 30 per cent of the nights of the year will be incorporated into the child support formula. In such cases, the child support formula will be reduced by either two or three percentage points depending on the level of contact.
A Fair and Effective Welfare System
Consistent with maintaining a sustainable social safety net and promoting equity, this Budget introduces further measures to ensure government assistance is targeted to the most disadvantaged. In particular, enhanced compliance with the eligibility criteria for income support is expected to deliver savings of around $171 million over four years. Another key measure will amend the means test treatment of private trusts and private companies for social security purposes to ensure that beneficiaries who hold their assets in private companies or trusts receive the same treatment under the means test as those beneficiaries who hold their assets directly. This is expected to deliver savings of around $300 million over the next four years.
The Government will also introduce a Preparing for Work Agreement for new claimants of unemployment payments. These agreements will increase compliance with mutual obligations requirements, ensure that beneficiaries are aware of their rights and obligations associated with grant payments and streamline unemployment processes. One-to-one assistance with the same designated Centrelink officer will encourage the economic participation of the unemployed people involved. The agreement will deliver a strong `up-front' message to all job seekers that they must meet their obligation to actively job search and participate in a range of additional activities in return for receiving unemployment payments.
Science and Technology
The Government has allocated funding of $31 million over four years in this Budget primarily to encourage the commercialisation of biotechnology research. Biotechnology offers economic opportunities for Australia, based on our existing research strengths in agriculture and medicine. Substantial funding is already provided for biotechnology research. The 1999-2000 Budget established a consistent regulatory regime for biotechnology and improved management of intellectual property as well as providing an additional $614 million over six years from 1999-2000 to the National Health and Medical Research Council for health and medical research, including in the area of biotechnology.
Further, $70 million has been allocated to facilitate the development of Gas to Liquid fuel technology in Australia. This should put Australia at the forefront of innovation in this field, with the possibility of greatly expanding the commercial potential of Australia's gas resources.
From 1 July 2000 a five cent per litre levy will apply to lubricating oils and similar products to fund payments to waste oil recyclers and reusers to support the sustainable management of waste oil. The Government has already committed $60 million over four years for transitional assistance to facilitate the appropriate disposal of waste oil.
Communications and the Arts
This Budget contains substantial measures to promote the transition to digital television services for the Australian Broadcasting Corporation (ABC), Special Broadcasting Service Corporation (SBS) and regional broadcasters. Digital television will allow viewers to receive broadcasts of widescreen, high definition programmes and interactive entertainment.
The funding for the ABC and SBS builds on the first tranche of assistance the Government provided to the national broadcasters in the 1998-99 Budget for the initial digital upgrade of their production and studio equipment. The Regional Equalisation Plan outlined above will assist regional and remote broadcasters during the transition to digital television services.
This Budget also makes provision for the continuation of triennium funding for the ABC and SBS.
Funding for the Australian Film Finance Corporation (AFFC) will be maintained at $50 million per annum. This will allow the AFFC to continue to play a key role in the production of Australian film and television programmes. The Budget will also provide $43 million over four years to implement the main recommendations of the Major Performing Arts Inquiry, with $34 million of this being additional funding and the balance from reprioritising within the portfolio. In partnership with the States, this will place the major performing arts companies on a firm artistic and financial footing.
A Secure Australia
The Government is in the process of a major review of Australia's defence requirements and will release a Defence White Paper later in the year. In this Budget the Government has provided a one-off increase of $100 million in 2000-01 to address priority areas. This will support defence force reserves and improvements in information management systems and logistic support.
This Budget also contains $128 million in additional funding in 2000-01 for the enhancement of two Collins Class submarines. The upgrade will result in two operational Collins submarines when the final Oberon Class submarine retires in 2001.
The Government has also agreed to a programme of Defence property sales. The sales mainly involve metropolitan office sites which are being sold in accordance with Commonwealth Property Principles.
This Budget introduces further measures to counter increases in unauthorised immigration. This includes a coordinated effort across government agencies to identify and combat people smuggling at its source and initiatives to improve the prospects of displaced persons through repatriation to home countries, integration in first asylum countries or resettlement in third countries. Mutual obligation and other welfare requirements are also being expanded to temporary protection visa holders. The establishment of a new detention facility in Darwin and streamlined assessment procedures will achieve ongoing reductions in detention costs.
In addition, a long-term strategy focusing on future detention requirements for unauthorised arrivals and visa over-stayers is being introduced. The strategy ensures that appropriate detention capacity will be available in the future.
The Government is supporting the United Nations efforts to rebuild a secure East Timor. This has involved a significant deployment of Australian Defence Force and Australian Federal Police personnel. The Government has also provided assistance to refugees and aid for humanitarian relief and reconstruction. Table 6 summarises the financial cost to Australia.
The main cost arises from Australia's Defence commitment to East Timor, estimated to cost $945 million in 2000-01 and significant amounts in later years. This is down from the estimated cost at MYEFO of $1,089 million in 2000-01. In particular the success of the INTERFET operation and the smooth transition to UN Transitional Administration in East Timor (UNTAET) has lowered the expected costs from deployment. Other contributing factors to the reduction in costs include logistical support from the United States and lower defence personnel costs.
This Budget provides significant additional funding to assist East Timor in its transition to nationhood. Now that the situation in East Timor appears to have stabilised, the focus of aid over the next few years will shift to restoring basic services and improving governance while continuing to provide necessary humanitarian relief. This Budget provides $150 million in foreign aid to support East Timor, with $100 million of this being extra funding. This initiative builds on the funding of $75 million provided to meet the humanitarian and reconstruction needs of East Timor in 1999-2000.
Last year, the Government agreed to increase Australia's commitment to the UNTAET civilian police force from our first detachment of 50 personnel to 80 personnel. The Government will continue its commitment of up to 80 deployed civilian police in East Timor by providing additional funding of around $104 million over the four years to 2002-03.
The UN will reimburse Australia for some of the costs of the Australian Defence Force deployment in East Timor in accordance with UN standard rates of reimbursement for troop contributing countries involved in UN Peacekeeping Missions.
Table 6: Net Cost of East Timor
(a) Total cost over four years from 2000-01.