Setting the Scene

The challenge facing the federal budget and the continued economic prosperity of Australia should not be underestimated.  That Australia has so far weathered the global financial crisis and continuing economic uncertainty around the world should not mean that we can be complacent about the levels of government spending and the debt and deficit built up over the last five years.  The 2013-14 Budget forecast a deficit this financial year of $18 billion and total net debt at a federal level of $178.1 billion (11.1% of GDP).  In the Economic Statement new Treasurer Chris Bowen announced on 2 August 2013, the deficit had blown out to $30.1 billion and federal net debt to $184.1 billion in just 12 weeks. These are not insignificant funds and it will require significant financial restraint to restore the budget.

Now that Australia is officially in the election period, the perennial debate over costings has fired up and with the release of the Pre-election Economic and Fiscal Outlook (PEFO) today the Coalition will come under significant pressure to release the cost of their election policies, and their plan to return the budget to surplus. For the Coalition, it is critical to ensure that these costings are error free – any mistakes will provide an opportunity for Labor to cast doubt on the Coalition’s economic credibility.  Given the vast discrepancies between Labor’s budget forecasts and what has eventuated over the past six years, the Shadow Treasurer, Joe Hockey, and other Coalition frontbenchers have expressed some scepticism in the reliability of Treasury forecasts. As such, they are instead submitting the policies to be costed to the Parliamentary Budget Office and other advisors.

As an aside, it was interesting to note that PEFO included for the first time a chart which showed the structural budget balance since the turn of the century.  This shows the budget was in structural surplus until the end of the 2006-07 – indicating that in fact, contrary to some claims, the Howard Government did not waste the proceeds of the mining boom.

The Budget Bottom Line (as announced in the 2013-14 Budget)

2012-13(estimate) 2013-14(estimate) 2014-15(estimate) 2015-16(projection) 2016-17(projection)
Surplus/deficit -$19.4b -$18.0b -$10.9 $0.8b $6.6b
% of GDP -1.3 -1.1 -0.6 0.0 0.4
Economic Growth 3.00% 2.75% 3.00% 3.00% 3.00%
Employment 1.25% 1.25% 1.50% 1.50% 1.50%
Unemployment 5.50% 5.75% 5.75% 5.00% 5.00%
Inflation 2.50% 2.25% 2.25% 2.50% 2.25%


UPDATED: Budget Bottom Line (as announced in the Pre-election Economic and Fiscal Outlook on 13 August 2013)

2012-13(estimate) 2013-14(estimate) 2014-15(estimate) 2015-16(projection) 2016-17(projection)
Surplus/deficit -$19.4b -$30.1b -$24.0b -$4.7b $4.2b
% of GDP -1.3 -1.9 -1.5 -0.3 0.2
Economic Growth 3.00% 2.50% 3.00% 3.00% 3.00%
Employment 1.25% 1% 1.50% 1.50% 1.50%
Unemployment 5.50% 6.25% 6.25% 5.00% 5.00%
Inflation 2.50% 2.25% 2.00% 2.50% 2.50%


On the 16th July 2013, Prime Minister Rudd announced that the transition from the carbon tax to the emissions trading scheme would be brought forward by one year, admitting that the tax is incurring significant cost pressures on the community and economy.  Newly released figures show the cost to the budget will be $3.8 billion over the one year of 2014-15 and ‘save’ consumers $380 for that year. This cost would be offset by cuts to climate change programs and the public service, and a tax increase as a result of the cuts to FBT concessions for car owners.  Note, however, that Prime Minister Rudd’s proposal involves a forecast price of $6 a tonne for carbon emissions, which could well be higher; and the Government’s forecasts assume the carbon price in 2019 will be $38 a tonne.  But for that one year of 2014-15, the cost impost of Prime Minister Rudd’s proposal is identical to Prime Minister Gillard’s legislated scheme.

Changes such as the carbon tax back down described above will impact on the budget bottom line and, combined with the change in political circumstances brought about by the replacement of Prime Minister Gillard with Prime Minister Rudd, will require the Coalition to re-analyse the impact of its own proposals on the budget.  However, the fundamentals of the Coalition’s economic strategy are sound.  After all, the Coalition has been saying all along that the carbon tax was a cost of living pressure which hurt business – Prime Minister Rudd has simply confirmed this.

At the heart of the Coalition’s approach is an understanding that that government debt repayments cannot be deferred for ever – the taxpayer always ends up with the bill.  Underpinning the strategy is an appreciation that economic growth is driven by business – it is the government’s role to provide the framework to allow enterprise to flourish.

Stated Commitments

The 2013-14 Budget set the backdrop for a number of announcements which point to the way Mr Abbott and the Coalition might approach the economic task. Of particular note in Mr Abbott’s Budget Reply speech was his declaration of a ‘budget emergency’ and as such, the decision by the Opposition in relation to the Government’s saving and taxation measures:

“Hence the Coalition may decide not to oppose any of them; doesn’t commit to reverse any of them; and reserves the option to implement all of them, in government, as short-term emergency measures to deal with the budget crisis Labor has created.”

(Tony Abbott, Hansard, 16 May 2013)


This was smart politics and necessary policy for a number of reasons: first, as others have stated, the easiest cuts to make are the previous Government’s; second, many of the spending cuts and tax increases need to be legislated or introduced in the next term of government and the Coalition has to lock Labor into supporting them as much as Labor wants to force the Coalition into implementing its agenda; and finally, Mr Abbott specified that the Coalition will only commit to implementing spending measures which it has already specified, thus getting around the trap outlined in the second point.

One of the key drivers of investor confidence and economic growth is the stability and certainty of economic settings.  Since 2007, business has been frustrated with the continuous tinkering with the rules and regulations relating to financial and tax policy.  For example, the recent change to rules regarding fringe benefits tax on work cars, without consultation, and the impact this had on the salary packaging, car leasing and car manufacturing industries, is a case study in how not to introduce tax changes.

The Coalition’s economics team, led by Shadow Treasurer Joe Hockey and Shadow Finance Minister Andrew Robb, are acutely aware of business dissatisfaction in this area and are committed to providing a consistent policy framework for industry to work within.

The Coalition has made a number of policy announcements which will impact on business and help restore the budget.  These include:

Budget and tax measures:

  • Repealing the carbon and mining taxes – arguably the most important of the Coalition’s election commitments.  The Shadow Minister for Climate Action, Greg Hunt has already prepared a detailed plan to repeal carbon tax if elected to government.
  • A company tax cut of 1.5 per cent from July 2015, taking the company tax rate to 28.5 per cent.  This tax cut will help neutralise the impact of the paid parental leave scheme, which will be funded by a levy on the 3750 biggest companies.
  • Following budget week, and in line with the promise to get the budget under control, Mr Hockey stated that the Coalition would axe the reduced baby bonus which the Government announced in the budget.
  • Establishing a Commission of Audit which will review all areas of government expenditure to start the new government with ‘a clean slate’[1].


  • Removing $1 billion worth of regulation each year, with Mr Abbott indicating in his budget reply address that the Coalition will have two parliamentary sitting days each year dedicated to repealing laws and unnecessary regulation.
  • Working with the states to create one stop shops for environmental approvals under the Environmental Protection and Biodiversity Conservation Act and based at the state level. This will include incentives for local government involvement and a single documentation and lodgement process.
  • An audit of all local, state and federal environmental regulation and legislation to identify ‘green tape’ that is incompatible and unworkable.
  • Amendments to reduce small business and consumer compliance costs arising from Labor’s Future of Financial Advice legislation.
  • An undertaking to perform a root and branch review of competition policy, the first in 20 years.


  • Relocation of deregulation responsibilities and the Office of Best Practise Regulation to the Department of Prime Minister and Cabinet.
  • Policies to remit government payments made on behalf of workers directly to the ATO.
  • Requiring each department and agency to reduce red and green tape each year, with yearly monitoring of results and with remuneration of SES public servants linked to proven regulation reductions.
  • A focus on small business – along with including small business as a cabinet portfolio within Treasury, the Coalition will appoint Commissioners to the ATO with business experience, institute reform of the ATO to make it less adversarial and more business friendly and work to reduce the complexity of business reporting to the tax office.
  • Mandatory Regulation Impact Statements which include the identification of measures that offset the cost impost to business of any new regulations
  • Creation of Ministerial Advisory Councils for each Cabinet Minister including relevant industry stakeholders.
  • Reform and simplification of government contract and procurement processes to reduce compliance costs for business and the Commonwealth.

For further information, please contact CapitalHill Advisory on (02) 6198 3210 or via email


Read Mr Abbott’s Budget Reply speech here.

The Shadow Treasurer, Joe Hockey, recently addressed the National Press Club.  His speech can be read here.

The Coalition’s Policy to Lower Company Tax can be read here.

The Coalition’s Policy to Boost Productivity and Reduce Regulation can be read here.