Budget 2017: Will planes, trains and drug tests be enough to distract people?

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(Meme by @Biggy1883)

The 2017 Morrison Budget is full of shiny, pretty things to distract the public from meaningful reform, writes Paul Davis.

It appears as if the Turnbull Government Budget of 2017 continues a theme from the disastrous 2014 Abbott Government Budget, yet with added “shiny” things to distract people, such as spending on planes, trains and automobiles. This Budget continues to tax the future to pay for the present. The question is whether the infrastructure spend will distract enough people.

The 2014 Budget was roundly condemned by the community due to Joe Hockey's “lifters and leaners” dichotomy, the dramatic cuts to community services, and pitch of the budget structure to the right with more investment in defence and targeting of the disadvantaged. While the 2017 budget removes the last of the “zombie measures” from the 2014 Budget (totalling around $13 billion) it in some ways doubles down in other areas. This includes changing the taxation mix so everybody else pays more tax, not just the wealthy, continued investment in welfare targeting using government data for drug testing of welfare recipients and expanding the cashless welfare card and further reductions in the size of the public service (such as1,288 fewer Department of Human Services staff).

The Turnbull Coalition Government estimates its tax receipts in 2017-18 will be $433,494 billion or 23.8% of gross domestic product (GDP). This is projected to grow to 25.4% of GDP by 2020-21 (Budget Paper 1 Statement 11 refers — Table 1). In comparison, Labor at the peak of the global financial crisis (GFC) taxed at 25% of GDP in 2007-08, most of the time around 22% of GDP. The the legendary Howard Government surpluses were based on high-taxes and the Turnbull Government return to surplus repeats the practice.

The changes will apply to most taxpaying Australians, which means, like the GST, the taxes are regressive, in they will impact those on lower and average incomes more than those on higher incomes. One big ticket change is the Medicare levy, which is to be increased from 2% to 2.5% from 1 July 2019 and is forecast to add $8.2 billion over the forward estimates (from 2018-19 to 2020-21). The low-income medicare threshold will be adjusted to compensate costing the Government $180 million over the forward estimates, noting the levy high income earners currently pays will be abolished. Yes, this means high income earners are getting a tax cut. This change will impact on young income earners who, if they go to university, will also be created with higher fees and charges — further taxing of the future. (Budget Paper 2 — Part 1: Revenue).

Another big change is the $6 billion to be collected from Australia’s big five banks. The Government will argue that the banks should just pay it and not pass the cost onto consumers. That argument is flawed, as banks are meant to generate profit and somebody will have to pay for the $6 billion. It will either be shareholders (often superannuation funds), or customers (depositors). This levy is, in effect, another tax that will hit most people as banks will most likely pass on the charge to consumers.

The Government plans to spend $465 billion in FY 2017-18 (Budget Paper 1 — Statement 6 — Table 2). The Budget Speech noted several infrastructure items worth noting again:

  • $5.3 billion towards the new Western Sydney airport;
  • $10 billion towards rail;
  • $75 billion towards roads and other infrastructure over 10 years; and
  • an announcement regarding Snowy Hydro 2.0.

Of these announcements, $75 billion is over 10 years, so only $7.5 billion a year. The Snowy Hydro 2.0 announcement was short on detail, however the Commonwealth offers to the NSW and Victoria to buy the dam providing the states agree to spend the funds as guided by the Commonwealth. Question is why would a state agree to being guided where it can spend its funds. The Commonwealth Government also said it would not sell the asset in the future, which is an empty promise as a government cannot bind a future government.

Other changes impact on the public indirectly through cuts to agencies such as the Australian Federal Police (151), Department of Human Services (1,188), amongst others. DHS has been in the headlines for the #notmydebt fiasco and the waiting times on Centerlink phone calls. It is unclear how further reductions in the number of staff will address those issues. The Government and DHS have announced the use of government data to drug-test welfare recipients and an expansion of the cashless welfare card program.

There are some other measures in the budget which are simple a transfer of wealth. Consider the Housing Affordability announcement allowing the young to save up to $30,000 at a lower rate. House prices will simply increase by $30,000 so there will be no net improvement in housing affordability — simply an increase in the wealth of owners at the expense of the youth. Consider also the changes to HECS, asking students to pay it back faster reduces their disposable income, their ability to save and spend.

Are there options? Moving beyond the distractions of spending on planes, trains, and automobiles, what could be done to “fix” the budget, if that is an objective, rather than increase the burden on the younger generations?

A personal favourite of the author is forgone revenue, otherwise known as taxation expenditures which is the money government estimates it does not collect because of taxation settings. For example, the Government estimates there is $63 billion in 2017-18 it will not collect because the main residence is exempt from capital gains tax (CGT).  (Budget Paper 1 — Statement 5 — Table A1) When considering the total estimated 2017-18 Federal Budget expenditure for education is $33 billion (Budget Paper 1 — Statement 6) and the deficit is predicted to be $29.3 billion; theoretically abolishing the main residence CGT exemption could pay for both these items.

The Government, by choosing to spread the tax burden to more australians and increase it, target banks who will probably pass on costs to consumers, focus their targeting of those on welfare and reduce the size of the public service, continues with the theme of 2014. The shiny planes, trains, and automobiles infrastructure spending may distract many, however sometimes it is worth ignoring the shiny things to see what really may be happening.

You can follow Paul Davis on Twitter @davispg.

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