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| Joe Hockey announces the crackdown on the tax of multinational companies. Picture: Gary RamageSource: News Corp Australia |
Tony Abbott has praised Joe Hockey telling his partyroom this morning that tonight’s federal budget includes proposals the government can go out and fight for.
Just hours before the treasurer hands down his second budget, the prime minister personally praised Mr Hockey for doing an “absolutely outstanding job” in its lead-up.
He said the heart of the budget was a good story which embodies the Coalition’s plan for a strong, safe and prosperous future and provides a credible pathway back to surplus.
“This budget is not about our political fortunes, but what is best for the people of Australia,” Mr Abbott told a joint party room meeting in Canberra.
Mr Hockey also spoke at the meeting, thanking the PM for his “steely resolve” to improve the budget bottom line down.
Since the Coalition came to office, he said the government had suffered a $90bn write off in revenue receipts but had continued to focus on building a more prosperous Australia.
“This is not about us splashing money but about us giving people back their money and encouraging them to have a go,” Mr Hockey said.
Foreign Minister Julie Bishop told her colleagues the foreign aid to Pacific nations was being preserved in the budget, however there would be a reduction in money given to South-East Asian countries except Cambodia.
Hockey upbeat
Tonight’s federal budget will defy market expectations of a $40 billion deficit, Treasurer Joe Hockey says, claiming the government is “going to beat that, and beat it every year”.
The Australian this morning reported jobs growth and a recovery in iron ore prices will allow Joe Hockey to trim the commonwealth deficit to below $40bn.
Mr Hockey said the government was “still on a credible trajectory back to surplus” despite writing off $90bn of expected revenue over the past 18 months, Jared Owensreports.
“In fact, the trajectory is no different to that that I announced at the end of last year. And we’re doing that despite all the different headwinds,” Mr Hockey said at a press conference outside Parliament House this morning.
“So this is delivering on what we’ve all been saying. It’s responsible, it’s measured and it’s fair and it’s going to be a big help for Australia’s small businesses and Australian families.”
Mr Hockey said last budget’s changes to the Newstart unemployment allowance would be recrafted in tonight’s budget.
“This is about giving people the chance to have a go,” Mr Hockey said.
“This represents the values of the nation. This budget is about not following the path of Labor, about increasing taxes, but about giving Australians back some of their taxes and importantly about giving Australians the opportunity to invest, to build a stronger and more prosperous nation.”
Opposition treasury spokesman Chris Bowen said the government had “given up the fight” on balancing the budget.
“The party that told us about a ‘debt and deficit disaster’ and a ‘budget emergency’ wants us to celebrate a $40bn deficit apparently,” Mr Bowen told Sky News.
“Of course, the deficit will be hostage to iron ore prices because the government has put up the white flag on any long term plans to get the budget deficit under control.
“We’ve been out there outlining plans over the decade for more savings than spending but the government has simply given up the fight.”
Deficits to defy dire forecasts
Jobs growth and a recovery in iron ore prices will allow Joe Hockey to trim the commonwealth deficit to below $40 billion — better than forecast by economists and his own department — but with tonight’s budget revealing another blowout in the nation’s debt.
While financial markets have been anticipating a deficit this financial year of greater than $40bn, it is understood it will now beat Treasury’s deliberately pessimistic forecasts in the mid-year budget update in December.
For the first time since the global financial crisis, future deficits are forecast to be consistently smaller than $40bn.
The December update had reported a significant deterioration since the budget in May, with the 2014-15 deficit forecast to rise from $28.9bn to $40.4bn as the 2015-16 bottom line dived from $17.1bn to $31.2bn. The peak debt forecast jumped $51.6bn to $315.8bn, and some economists now predict it will approach $400bn in 2018-19.
However, figures for the first nine months of the 2014-15 financial year show the deficit was $4bn lower than predicted and this improvement should be reflected in the full-year figures to be unveiled tonight.
The “upside surprise” on the deficit will be vital to the government’s political fortunes as Tony Abbott and the Treasurer claim to show a path to a surplus, despite the continued weakness in commonwealth finances since they took power.
The Prime Minister is insisting that all new spending must be offset by savings but he has signed off on substantial new outlays — including $3.5bn for childcare — despite warnings from economists about the need to cut programs.
While the government will promise to eliminate waste, it is also relying on new revenue measures to help balance the budget, including tighter rules on fringe benefits tax.
In a move to protect tax revenue, the Treasurer yesterday announced plans to target 30 global companies, including Google and Apple, that could be shifting their profits offshore to avoid tax even as they make billions of dollars from Australian consumers every year.
A separate measure will require companies selling digital products in Australia — such as Google, Apple and Netflix — to collect a 10 per cent GST, which will go to the states.
Making jobs growth a central promise in tonight’s economic statement, the Treasurer will also outline: a tax cut for small companies; tax breaks for small employers who invest in equipment to grow their businesses; financial incentives to help employers hire older workers; and more training programs to boost the supply of skilled staff.
Mr Hockey said the tougher tax laws would target billions of dollars in profits being shifted offshore but he would not estimate the tax revenue to be gained and said it would not be included in the budget forecasts. “This is about the integrity of the Australian taxation system, and you know what? If there’s more integrity in the Australian taxation system, then Australians that do the right thing might just end up paying less,” he said.
The integrity measures will be accompanied by stricter rules on welfare to assure voters that the budget is fair, countering Labor’s campaign against last year’s policies for taking benefits away from families.
Labor Treasury spokesman Chris Bowen dismissed Mr Hockey’s tax hit on multinationals as “desperate”, contrasting the Coalition announcement with a Labor tax on big companies that could raise $7.2bn over a decade, costed by the Parliamentary Budget Office.
A stalemate has emerged over family policies as Labor and others refuse to accept Mr Abbott’s demand that the Senate approve cuts to family tax benefits to pay for a more generous childcare package.
Mr Abbott did not rule out a deal on the changes when asked if there was “room to move” on last year’s measure — yet to be passed by the Senate — to halt family tax benefits to families when their youngest child turns six.
“I’m not going to pre-empt discussions which may be had post-budget between (Social Services Minister) Scott Morrison and the opposition and the crossbench,” Mr Abbott said.
The government is still expecting falling commodity prices and weaker business investment than was anticipated six months ago will hit the budget bottom line over the next few years, with the Treasurer reiterating yesterday that the fall in iron ore prices would have “a dramatic impact” on budget revenues. However, the spot iron ore price has bounced back in the past two weeks from its low of $US47.50 a tonne to a current price of $US62 a tonne, which is close to Treasury’s expectations at the time of the December budget update and far higher than the $US35 a tonne Mr Hockey warned four weeks ago could be the base for budget calculations.
Deloitte Access Economics partner Chris Richardson, who has predicted that the deficit will surpass $45bn both this year and next, says the increase in the iron ore price could be worth $5.5bn a year in additional tax revenue, although Treasury would still have to make a judgment about the outlook for Australia’s most important commodity export.
After five years of budget forecasts that were too optimistic, Treasury included gloomy economic forecasts in its mid-year budget update, including that “nominal GDP”, which is the base for tax revenue, would rise by only 1.5 per cent this year, the weakest growth since the 1962 recession.
Commonwealth Bank chief economist Michael Blythe said unemployment had not risen to 6.5 per cent as anticipated by Treasury in December, resulting in lower benefit payments.
The deterioration in the economic outlook since December is expected to result in net debt rising above the peak level of $315.8bn, which was forecast for 2017-18. Westpac estimates it will reach $350bn by that year, while more pessimistic estimates by Deutsche Bank suggest it will surpass $400bn by 2018-19.
Westpac interest rate strategist Damien McColough said the mid-year budget update had shown that the government would have to raise $83bn over 2015-16 to roll over maturing debt and cover the predicted deficit. He said if the deficit did rise to $40bn as markets and Westpac expected, it would raise the total financing requirement next year to about $95bn.
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