The Federal Government has released its 2017-18 Budget forecasting a deficit at $29.4bn for 2017-18, down from $37.6bn in 2016-17.
Thanks to the NSW Business Chamber, please find below the key things you need to know about the budget and what it will mean for business.
We know you’re busy so we’ve kept the analysis short, but if you want to know more, the national chamber, the Australian Chamber of Commerce and Industry, has produced the ‘Budget in Depth’ document which can be found here, and the full budget papers are available at www.budget.gov.au.
1 — Budget and economic outlook
The Budget emphasises growing signs of strength in the global economy and optimism around the Australian economy’s ability to transition away from the investment phase of the mining boom towards broader-based drivers of economic growth.
Key Government forecasts and projections remain in line with those at Mid Year Economic and Fiscal Outlook (MYEFO). GDP is forecast to grow by 2 ¾ per cent for 2017-18 and 3 per cent in each other year over the forward estimates (which is broadly in line with market forecasts).
The Budget strategy sees the Budget projected to reach a surplus by 2020-21 (in underlying cash balance terms), as initially planned. In its conversation about “good” and “bad” debt, the Government has sought to emphasise that the Budget position is in much better shape when adjusting for capital investments. On this measure the Net Operating Balance, which excludes capital expenditure, is set to reach a surplus in 2019-20, one year earlier than projected at MYEFO. This will help the Government as it tries to convince the credit rating agencies that it maintains a credible path back to surplus in order to retain its AAA credit rating.
Higher taxes from companies are more than offset by lower forecast individuals and other withholding tax, superannuation fund tax and GST given downwards revisions to the outlook for wages. This has weakened the revenue for 2016-17 and estimates for 2017-18.
2 — Tax
The Budget also confirms the extension of the instant asset write-off scheme, which was originally to expire on 30 June 2017. By extending the scheme by 12 months to 30 June 2018, businesses with a turnover of under $10m will be able to immediately write off depreciating assets that cost less than $20,000 as they have since 1 July 2016.
While the Government faces opposition in the Senate for its 10-year Enterprise Tax Plan announced in the last Budget, the Government has passed legislation confirming the cuts scheduled for implementation this term. This means that:
- companies with a turnover of less than $10 million will pay the reduced rate of 27.5 per cent this financial year;
- in 2017-18, the new rate will apply to companies with up to a $25 million turnover;
- in 2018-19, the new rate will apply to companies with up to a $50 million turnover; and
- the tax rate will progressively reduce until 2026-27 to 25 per cent for companies with up to a $50 million turnover.
Despite a lack of crossbench support, the Government has not ditched its plan to expand company tax cuts to all businesses with the schedule of tax cuts remaining factored into the Government’s Budget projections.
3 — Infrastructure spending and regional development
The Budget confirms funding over the next four years to progress the Western Sydney Airport, which is expected to generate around 20,000 direct and indirect jobs in Western Sydney by the early 2030s, and keep it on track to open by the mid-2020s.
The Government will make an equity investment of up to $5.3 billion in WSA Co, a new Commonwealth‑owned company, to fund the first stage of development of Western Sydney Airport. The Government also announced more detail on the Western Sydney City Deal which brings the Commonwealth, New South Wales and eight local governments together in partnership to focus on local job opportunities, connectivity and liveability. The Federal Government will offer incentive payments to help progress planning reforms to deliver more homes in Western Sydney, and the City Deal aims to catalyse development in the area surrounding the new Western Sydney Airport, stimulate local job growth and improve transport options with the rest of Sydney
4 — Skills and education
The Budget has a significant focus on building the skills of Australia’s workforce and creating greater opportunities for work.
The centrepiece of the package is a new $1.5bn four year Skilling Australia Fund which will be used by the Federal and State Governments for projects designed to improve participation in apprenticeships and traineeships. Participation in vocational pathways to work has been on the decline nationally for more than a decade. The extra $200m the Fund provides for apprenticeships and traineeships will give greater certainty to businesses looking to engage a training worker.
Most of the new Fund ($1.2 billion) will, however, be paid for by the private sector. As the Federal Government announced last month, the 457 visa scheme is being replaced with a new scheme for short term skilled migration. Employers can still bring in specialist skilled workers, but will have to pay a levy which will be used to create the Skilling Australia Fund. We’ve expressed our concern the new levy could negatively impact the bottom line of businesses who are already in difficulty due to skills shortages.
5 — Housing
The Government confirmed that it would not make changes to negative gearing or the capital gains tax discount.
The Government announced a new scheme supporting first homebuyers by allowing them to accumulate a deposit inside superannuation tax settings. Voluntary contributions of up to $15,000 per year and $30,000 in total will attract concessional tax treatment under the scheme. This will allow first homebuyers to save for a deposit sooner than they otherwise could and partially addresses the biggest hurdle for first homebuyers which is saving enough funds to cover the deposit and other upfront costs such as stamp duty.
The Government will also introduce a 50 per cent cap on foreign investors for new developments to improve opportunities for Australian resident buyers. An annual charge will also be applied to foreign owners who leave their properties unoccupied or not available for rent for six months or more each year.
These measures will be complemented by a number of supply-side initiatives including establishing a $1bn National Housing Infrastructure Facility to address infrastructure impediments in areas of undersupply. Commonwealth land will be released for the development of up to 6,000 new residential dwellings while the Government will work with the states and territories to set housing supply targets under the new National Housing and Homelessness Agreement.
6 — Other measures affecting business
The Government’s National Partnership on Regulatory Reform will reward States and Territories (States) that reduce regulatory restrictions on competition, particularly those on small businesses. The Government will provide $300 million over two years under the new National Partnership on Regulatory Reform to incentivise the States and local governments to lessen the regulatory burden on small businesses and remove other restrictions that hinder economic growth and competition.
The Government has announced a number of measures to address the current energy crisis. The Government has maintained its commitment to assess the feasibility of upgrading Snowy Hydro scheme as well as looking for further hydroelectricity and pumped storage opportunities. The Government has also provided $90 million to address short term gas supply issues, including to improve the competitiveness and transparency of domestic gas markets and to assess opportunities for constructing gas pipelines from the Northern Territory and Western Australia to the east coast to deliver more gas supply into the market.
The Government will create a new framework for dispute resolution with a one‑stop shop, the Australian Financial Complaints Authority, to consider all financial disputes to ensure that consumers and small businesses have access to effective dispute resolution. The Australian Securities and Investments Commission will be provided with stronger powers to oversee this new body. The Government will legislate for a new banking executive accountability regime to enforce new obligations on bank conduct.
The Government will commission a Productivity Commission inquiry into the financial system, in response to recommendations of the Financial System Inquiry. The inquiry will examine the level of contestability and concentration in key parts of the financial system; competition in the provision of retail products and services; and the provision of finance to small and medium enterprises.
The Government will continue to implement a range of tax integrity measures, including those that combat businesses operating in the black economy. While these measures support an even playing field, they can also create new tax administration burdens for compliant businesses.
This 2017-18 budget analysis is provided by the NSW Business Chamber