2015/16 Budget

Treasurer Joe Hockey has delivered the Abbott Government’s second Budget.

In crafting the document, the Government has sought to carefully navigate a choppy economic and political environment.  It has needed to heed lessons out of the 2014-15 Budget process, which the Senate and many in the community believed did not strike the right balance, cutting too hard and deep in order to reign in debt and the burgeoning deficit.

With some of the heavy lifting done last year, a steadier path back to surplus is now being pursued, with targeted stimulus in this year’s Budget to spark the economy.

The centrepiece of the Budget is a $5.5 billion Jobs and Small Business package, including a 1.5 per cent tax cut or deductions for more than 2 million small businesses, to help stimulate the ‘engine room’ of the national economy. Businesses with turnover of less than $2 million will also be able to claim tax deductions for every item they purchaseI under $20,000. Included in the package are a range of measures aimed at reducing red-tape for small business, including streamlined business registration, as well as the ability to more easily change the legal structure of a business as it grows, without incurring a capital gains tax liability.

Also at the core of this budget is a $4.4 billion Families package, aimed squarely at middle Australia, to encourage more than 240,000 families to increase their involvement in paid employment. $3.5 billion will be allocated to the reform of the child care system, and from 1 July, 2017 the Government will introduce a simpler means tested Child Care Subsidy, paid directly to approved care service providers. The rationale is that more affordable access to quality child care will improve workforce participation of more families. $330 million will also be spent on transition to work and job-seeker programs.

The economic imperative, though, still remains to find savings for new measures and to offset the continued decline in revenues due to falling commodity prices and a sluggish economy. This is compounded by around $28 billion in budget savings measures over four years from last year’s Budget, which were blocked by the Senate.  The new savings will be derived from the abolition of a range of statutory bodies, further asset sales, tightened eligibility for pensioners with higher levels of assets, and efficiency dividends being demanded from departments and agencies, including headcount reductions.

With an eye to the politics, and the notion that all taxpayers should pay their fair share, a range of tax integrity measures have also been announced. Stronger anti-avoidance laws have been announced, targeting the activities of 30 identified multinational companies, following the recent Senate inquiry into corporate tax avoidance. The Australian Tax Office will be given additional powers to investigate company tax arrangements, in order to recover the tax that should be paid in Australia. The Tax Commissioner will also be given powers to recover unpaid taxes and issue a fine of an additional 100% of unpaid taxes plus interest.

The Government will also seek to level the playing field for the suppliers of digital products and services in Australia in relation to the GST, particularly where a supplier of digital products in Australia has to charge GST and an off-shore supplier does not.  Revenue from this initiative is expected to be $350 million over the next four years, the proceeds of which will go to the States.

While the Government’s pre-announcement of a number of Budget measures this year has given voters, stakeholders and crucial crossbenchers the opportunity to examine some of the detail in advance, its passage through the Senate is not assured. Some Senators have already flagged their opposition to linking the signature childcare measures to last year’s budget announcement that Family Tax Benefit Part B should be cut when the youngest child turns six years of age, however the Government has indicated there is room for negotiation on where savings could be offset to fund the package.

Notwithstanding the challenges ahead in the Senate, this Budget sets the Government back on a safer economic and political path, in the lead up to an election due in the second half of 2016.

The Bottom Line

	2015-16	2016-17	2017-18	2018-19
	(estimate)	(estimate)	(projection)	(projection)
Surplus/deficit	– $35.1b	-$25.8b	-$14.4b	-$6.9b
% of GDP	-2.1	-1.5	-0.8	-0.4
Economic Growth	2.75%	3.25%	3.5%	3.5%
Employment	1.5%	2%	2%	2%
Unemployment	6.5%	6.25%	6%	5.75%
Inflation	2.5%	2.5%	2.5%	2.5%

 

Departmental Spends and Saves

Agriculture

• A $271.8 million drought package over four years will provide concessional loan funding, as well as the extension of social and mental health services.
• The Government has budgeted $550.2 million over four years for quarantine and border protection activities, comprising $274.7 million for the Department of Agriculture and $275.6 million for the Department of Immigration and Border Protection.
• Surveillance and offshore audits will be expanded to better manage biosecurity risks.
• $30.9 million will be saved over four years from uncommitted funding from the National Food Plan initiatives, which will be redirected towards an Agricultural Competitiveness White Paper.
• The Aquaculture Committee; the Community Consultative Committee; the Industry Liaison Committee; the National Decision Making and Investment Working Group; and the Statutory Fishing Rights Allocation Review Panel will be abolished.
• $60.8 million over four years will be provided to drought-affected communities to better manage pests, and for grants to local council infrastructure projects.

Attorney General’s 

• $153.8 million will be provided over four years to implement the mandatory telecommunications data retention scheme.
• $12.5 million will be provided over two years to extend the operation of Operation Sovereign Borders.
• Savings of $13.2 million will be achieved over five years in relation to programs administered by the Australia Council, Screen Australia and the Attorney-General’s Department.
• The Attorney-General’s Department will receive reduced funding of $54.2 million over five years.
• $25.5 million over two years will be provided to legal assistance programs.
• $1 billion will be provided over four years for a new National Partnership on Legal Assistance Services, which will include transferring Commonwealth funding to the states.
• $104.7 million will be provided over four years to establish a National Programme for Excellence in the Arts.
• $21.7 million will be provided over four years to counter violent extremism, including combating terrorist propaganda.
• $22.5 million will be provided to streamline the operational functions of the courts, and $30 million will be spent on refurbishments.

Communications 

• The Government will provide $254.7 million over four years from 2015-16 to support the initial implementation of the Digital Transformation Agenda, which will deliver a better user experience for individuals and businesses engaging with government, reduce red tape and increase the efficiency of government service delivery.
• The Government will provide $95.4 million over four years from 2015-16 to establish the Digital Transformation Office as a new Executive Agency within the Communications portfolio.

Cross Portfolio 

• Indexation of 78 government programs will be paused for three years from 2017-2018, saving $36.3 million.
• The Government wil seek to achieve savings of $31.4 million over two years from 2017-2018 by reforming back-office IT systems.

Defence

• The Government will disband the Defence Materiel Organisation (DMO) and transfer its responsibilities and funding to the Department of Defence (Defence), effective from 1 July 2015. Its ongoing annual funding will be transferred to Defence.
• $191.3 million in net additional cost will be provided to extend Operation Accordion over three years, which supports the ADF’s broarder activities in the Middle East Region.
• $216.8 million will be provided over four years in net additional cost for Operation Highroad, which relates to the training mission in Afghanistan.
• $41.3 million in net additional cost will be provided to extend Operation Manitou over three years, which supports the ADF’s activities in counter terrorism and piracy in the maritime Middle East Region.
• $403.2 million in net additional cost will be provided to extend Operation Okra over four years, which is the ADF’s contribution to the international effort to disrupt ISIL.
• $53.8 million in net additional cost will be provided to extend Operation Resolute over two years, which relates to the protection of Australia’s borders and offshore maritime interests.

Employment 

• The Government will achieve savings of $86.1 million over five years by changing the Job Services Australia fee structure and removing the requirement for job seekers to attend Personal Contact Interviews
• The Government will provide $24.9 million over four years from 2015-16 to further strengthen the job seeker compliance framework by introducing stronger and more immediate penalties for job seekers who do not meet their mutual obligation requirements.
• The Government will establish a single wage subsidy pool from July 2015 with access to funding of approximately $1.2 billion over four years, through the consolidation of four existing programmes: the Long Term Unemployed Wage Subsidy, the Youth Subsidy, the Restart Subsidy and the Tasmanian Jobs Programme
• The Government will provide $212.0 million over four years from 2015-16 to establish a new intensive support service to help young people at high risk of long term unemployment and welfare dependency.

Environment

• $6.1 million will be provided to extend the operation of the Climate Change Authority, in accordance with the agreement on the Emissions Reduction Fund, until 31 December 2016. Funds will be redirected internally within the Department of the Environment.
• Savings will be achieved from the following programmes: Green Army Programme ($73.2 million less funding over four years); Natural Heritage Trust ($12.3 million over five years); National Urban Water and Desalination Plan ($1.2 million in 2015-2016); as well as the cessation of the Emissions Reduction Fund Expert Reference Group and River Murray Water Committee.
• $100 million will be provided over four years to the Reef Trust, brining the total contribution to $140 million.
• $60 million will be provided over four years for the development of irrigation projects in Tasmania.

Foreign Affairs and Trade

• The Government will provide $106.0 million and $138.4 million over two years to maintain Australia’s diplomatic presence and security arrangements in Baghdad and Afghanistan, respectively.
• The Government will provide $98.3 million over four years to boost the Department of Foreign Affairs and Trade’s overseas network by opening new diplomatic posts in PNG, Qatar, Indonesia, Thailand and Mongolia, as well as providing increased resources for the United States.
• The Government will provide $295.8 million over six years to strengthen capabilities of the Australian Secret Intelligence Service (ASIS) including upgrading its ICT systems.
• The Government will provide $30.0 million over four years to attract major job creating investment in each of the Government’s five investment priority areas: infrastructure; tourism; resources and energy; agribusiness and food; and advanced manufacturing, services and technology.

Health

• The Government will provide $485.1 million over four years to continue the operation of the eHealth system, make key system and governance improvements and implement trials of opt-out arrangements.
• The Government will provide $1.6 billion over five years for a number of new and amended listings on the PBS and the Repatriation PBS. New and amended listings since the Mid-Year Economic and Fiscal Outlook 2014-15 include: Myozyme®, Lemtrada®, Lucrin®, Xolair®, Erbitux®, Kadcyla®, Perjeta®, Herceptin® and Mekinist®.
• The Government will achieve savings of $252.2 million over five years for price amendments for certain medicines currently listed on the PBS and the Repatriation PBS.
• The Government will provide $161.8 million over five years from 2014-15 for new and amended listings under the National Immunisation Programme.
• The Government will amend the MBS and Veterans’ Benefits for new and amended items listed since the Mid-Year Economic and Fiscal Outlook 2014-15, at a net cost of $39.8 million over four years.
• The Government will achieve savings of $113.1 million and $962.8 million over five years from 2014-15 through structural changes within the Department of Health and supporting agencies, and by rationalizing and streamlining funding across a range of Health programmes, respectively.
• The Government will provide $10.2 million over two years from 201516 to improve organ and tissue donation and transplantation rates.
• The Government will provide $34.3 million over two years from 2015-16 to continue the Medical Services Advisory Committee’s activities and deliver an expanded process of MBS Review overseen by a clinician led Medicare Benefits Schedule Review Taskforce.

Human Services 

• The Government will achieve savings of $1.7 billion over five years by enhancing the Department of Human Services’ (DHS) fraud prevention and debt recovery capability, and improving assessment processes.
• The Government will provide $60.5 million over four years from 2015-16 to progress Tranche One of the DHS Welfare Payment Infrastructure Transformation (WPIT) programme. The WPIT programme of redevelopment work will progressively replace Centrelink’s ageing technology platform with a new welfare payment ICT system to improve the quality and efficiency of service delivery to support the timely implementation of policy changes. During Tranche One of the programme, DHS will undertake the detailed business planning, scoping and design work required to deliver the new ICT system, in addition to delivering four projects to enhance the digital service delivery experience for DHS customers.

Immigration and Border Protection

• The Government will achieve savings of $554.5 million over five years from 2014-15 by consolidating the immigration detention network. Facilities at Phosphate Hill and Construction Camp on Christmas Island and Blaydin in Darwin will be closed. The North West Point facility on Christmas Island will transition to a contingency setting.
• The Government will provide $389.6 million over two years to implement refugee resettlement arrangements for Illegal Maritime Arrivals who are found to be owed protection. The Australian Government will work with the Governments of Nauru, Papua New Guinea, and Cambodia to build their capacity to deliver settlement services including accommodation, health, education and case management, and to increase their removals capability.
• The Government will achieve savings of $270.1 million over four years from 2015-16 from the consolidation of the Australian Customs and Border Protection Service and the Department of Immigration and Border Protection into a single department.

Industry

• $20.5 million will be provided in 2016-2017 to the Australian Neucular Science and Technology Organisation for the operation of the Australian Synchrotron.
• $105 million will be saved by not progressing the Automotive Transformation Scheme and Automotive Assistance measure, due to market developments.
• $26.8 million will be saved over four years by reducing the Cooperative Research Centres programme.
• A Home Insulation Program Industry Payment Scheme will be established to provide payments to pre-existing home insulation businesses adversely affected by the Home Insulation Program.
• The Entrepreneurs’ Infrastructure Program will receive $27.3 million less funding over five years; various industry grants will be closed to new applications saving $31.7 million; and various bodies have been streamlined within the CSIRO.

Infrastructure and Regional Development 

• The Government will provide $101.3 million over four years from 2015-16 to improve cattle supply chains in the north, with a particular focus on road infrastructure.
• The Government has committed $202.9 million from 2015-16 to 2018-19 to the expansion of the Tasmanian Freight Equalisation Scheme to provide assistance for the shipment of goods going to markets not currently covered by the Scheme
• The Government will provide $50.0 million over three years from 2015-16 to extend the Community Development Grants programme.
• The Government will provide $45.0 million from 2015-16 to establish a programme to fund small capital projects put forward by community groups for an initial two year period.
• The Commonwealth Government will provide $3.0 billion for the East West Link to any Victorian Government that proceeds with the project.

Prime Minister and Cabinet 

• The Government will replace the existing National Partnership Agreement on Remote Indigenous Housing with a new Remote Indigenous Housing Strategy over three years from 2015-16 totalling $1.1 billion. Funding will be provided to state governments to build new houses and refurbish existing houses in remote Indigenous communities, as well as employment-related accommodation in urban and regional areas.
• The Government will redirect funding of $988.2 million over eight years to establish a new National Partnership Agreement (NPA) on Northern Territory Remote Aboriginal Investment.

Social Services

• The Government will achieve savings of $2.4 billion over five years by increasing the asset test thresholds and the withdrawal rate at which pensions are reduced once the threshold is exceeded.
• The Government will invest an additional $3.5 billion over five years on childcare assistance, including a new Child Care Subsidy. The Government will also spend around $250 million on an Interim Home Based Carer Pilot Programme (Nannies Trial) to extend subsidy support to eligible families using nannies.
• The Government will achieve savings of $967.7 million over four years by removing the ability for individuals to ‘double dip’ when applying for the existing Parental Leave Pay scheme, from 1 July 2016.
• The Government will align the eligibility criteria for FTB Part A and youth income support payments, by removing the Family Assets Test and the Family Actual Means Test from 1 January 2016. The Government will also apply a single Parental Income Test where a family receives both Youth Allowance and FTB Part A.
• The Government will provide $105.7 million over five years from 201516 to improve employment, educational and social outcomes for parents and young people who are unemployed, have a mental health condition, are refugees or are vulnerable migrants.
• The Government will reverse the 2014-15 Budget measure Stronger Participation Incentives for Job Seekers under 30 and instead require young people under 25 years of age without significant barriers to employment to actively seek work for a four week waiting period before receiving income support payments. These changes are estimated to cost $1,844.7 million over five years.

Treasury

• The Government will introduce a number of new measures to combat multination tax avoidance, including a targeted new anti?avoidance law, new transfer pricing documentation standards and stronger penalties. These measures are estimated to have an unquantifiable gain to revenue over the forward estimates period.
• The Government will introduce a number of new measures to target growing jobs and small businesses, including delivering a tax cut to all small businesses through a 1.5 percentage point tax cut for small companies and a five per cent tax discount on income from unincorporated small business activity. These tax cuts will be available from the 2015?16 income year, and are estimated to have a cost to revenue of $3.3 billion over the forward estimates period.
• The application of the GST will be extended to cross border supplies of digital products and services imported by consumers from 1 July 2017. The measure is estimated to have a gain to GST revenue of $350.0 million over the forward estimates period.
• The Government will strengthen Australia’s foreign investment framework through improved compliance and enforcement, stricter penalties, the introduction of application fees, and more scrutiny and greater transparency for agricultural investment. The introduction of application fees on all real estate, business and agricultural foreign investment proposals from 1 December 2015 is estimated to raise $735.0 million in revenue over the forward estimates period.