Federal Budget 2015
About the author:
- Author name:
- By Michael Knox
- Job title:
- Chief Economist and Director of Strategy
- Date posted:
- 13 May 2015, 10:09 AM
This time last year, we noted that the budget was one of pretend austerity. Much of the debate
following the budget then pretended that the austerity was real. It was not real austerity then
and it is not real austerity now.
In Chart 1 below, drawn from Statement No.10 page 6, we see
the payments of the budget as a percent of GDP.
Last year the budget was for year 2014/15.
In that year, payments grew to 25.9% of GDP. This was UP from 25.7% of GDP the year
before.
The current budget year is 2015/16. Payments are again expected to be 25.9% of GDP in this
budget year. There is only a mild decline in outlays in the next three years. Payments ease to
25.5% of GDP in 2016/17. They further ease to 25.3% of GDP in 2017/18.
Payments then
remain stable at 25.3% of GDP in 2018/19. If last year is a guide, this stability in expenditure
will come to be attacked as cruel and unfeeling austerity.
At the same time though, the budget deficit is being addressed. Revenue is expected to grow.
In 2014/15 revenue is expected to be 23.5% of GDP. This should grow to 24.0% of GDP in
2015/16. Revenue should recover in 2016/17 to 24.2% of GDP.
It should grow further in
2017/18 to 24.7% of GDP. In 2018/19 revenue should rise further to 25.2% of GDP. This
process of stable spending and rising revenue moves to reduce the deficit.
In Chart 2, we see the improvement in the General Government Cash Balance. As
well as payments, the cash balance includes net cash flows from investments in financial
assets.
This gives us a slightly different result than the simple difference between receipts and
payments. In 2014/15, the headline cash deficit was 2.7% of GDP. In 2015/16 the headline
cash balance should remain at 2.7% of GDP. However, in future years the deficit declines.
This deficit should fall to 1.3% of GDP in 2017/18. It should decline again to 0.9% of GDP in
2018/19.
This kind of decline should be enough to stabilize Australia’s sovereign debt relative to the size
of Australian GDP.
Growing Jobs
This is one of the few budgets were a lot really happens in the Budget Speech. Everybody
knows that most employment is created by small business. This budget really does seek to
provide incentives for the expansion of small business. This must inevitably support
employment growth.
The first incentive is to reduce the company tax rate on companies with annual turnover of less
than $2 million.
From 1 July, the company tax rate will fall from 30% to 28.5%. For those small
businesses that are not incorporated, there will be a 5% tax discount of up to $1,000 per year.
The real incentive for small businesses is 100% accelerated depreciation allowances. In
simple terms, small business can receive an immediate tax deduction for each and every item
they purchase up to $20,000. The objective is to increase investment in the 96% of Australian
businesses that have turnover of less than $2 million per year.
This means that every item,
including cars, kitchens or machinery will receive this accelerated depreciation allowance.
The government will also abolish fringe benefits tax on all portable electronic devices like
mobile phones, laptops and tablets.
The government will also expand the tax concessions for
employee share schemes. Employees will not have to pay tax on their shares until they
actually receive a financial benefit from those shares. All of these initiatives should speed jobs
growth in the small business sector.
The Economic Outlook
Compared to the recent outlook provided by the RBA, the Treasury outlook appears almost
optimistic. GDP growth is still a somber 2.5% in 2014/15. Still, it rises to 2.75% in 2015/16. It
then rises again to 3.25% in 2016/17.
The result of this acceleration in growth is that
employment rises from 1.5% in 2014/15 and 1.5% again in 2015/16 to 2% in 2016/17.
This
allows unemployment to rise slightly to 6.5% in 2015/16. Unemployment then declines to
6.25% in 2016/17.
Wages growth is relatively slow and stable.
Wages should grow by 2.5% in 2014/15. They
should grow again by 2.5% in 2015/16. This wages growth should rise slightly to 2.75% in
2016/17.
Conclusion
This budget keeps outlays steady. At the same time, the budget provides support to the small
business sector.
The objective is to support small business employment growth.
Should things go well, the economy will recover and rising tax receipts will reduce the deficit.
We hope that things go well.
More information
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