$53b in the red and waiting on growth
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The Rudd Government has made infrastructure, retirement incomes and clean energy the centre of the 2009-10 budget, but the promised assault on middle class welfare is a low key affair. While the Government has promised $1.5b in savings next year and much more over the following four years, the big gains come from superannuation changes, means-testing of the private health insurance rebate and tightening of the taxation and family tax benefit system. Wayne Swan has produced a lower-than-feared deficit of $53.1 billion that is still nearly 5% of GDP, based on an economy that will bottom during the year and average -0.5% growth, and unemployment of 8.25%, but, optimistically, ride a global recovery back to higher growth in later years. The Government will become the highest spending in Australian history, taking expenditure to 28.6% of GDP on the back of a massive road and rail investment program, a multi-billion dollar clean coal and solar technology fund, more educational investment — all funded from the Government’s investment funds — and a substantial lift in the pension rate. The impact of the global downturn on revenues has also significantly worsened, with the Government downgrading receipt forecasts by a total of $210 billion, matching the revenue boost delivered by the minerals boom in recent years. The write-down of revenue means the deficit for the current year has blown out from February’s estimate of $22 billion to more than $32 billion. Wayne Swan’s mantra will be the one he repeated at his press conference this morning — “jobs, nation building and a path back to surplus”, with the Government stressing the employment impact of its “early and decisive stimulus”, a massive infrastructure program and detailed assurances of a return to surplus by 2015-16 on the back of higher-than-usual forecasts for levels of growth as the economy recovers from recession. This is a Budget very much of a piece with the Government stimulus packages so far: heavy emphasis on infrastructure, more cash handouts via pension increases and the scheduled tax cuts, but this time coupled with a relatively mild attack on superannuation concessions, private health insurance and some fiddling — albeit highly remunerative fiddling — at the edges of family tax benefits and the tax system. It will deliver a substantial stimulus into the economy in 2009-10, but only make a start on the more longer-term challenge of paring expenditure back to sustainable levels. |
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13 Comments
Four questions:
1) Can some numerate person work out what the cost of someone earning $149,999 pa is if they can be bothered to earn one more dollar?
2) Why is income confused with wealth? There are a bunch of reasons why someone earning $150k pa is less wealthy than someone earning less including being paid in share options vs PAYE, divorce, family size etc. For example my ex wife who hasn’t worked in 17 years has a boat, a holiday house, a swimming pool and an unencumbered house (I have non of these, but I pay the tax).
3) Have Wayne and Kev also aligned their non age capped, non means tested pensions of way more than $100k pa to the rest of us? Kev (or Wayne) could retire tomorrow on this pension - no annual $25k caps, no waiting till they are 67 and no worries about running out of money.
4) Is anyone else getting worried about the divisive language. Apparently those earning more than average are NOT “working Australians” or “hard working” but they get undeserved “middle class welfare” and are the “super rich”….. hmmmmm
No and you know why? because its a stupid question.
49,998 anyone anyone?
Though some may have been hoping for some more structural changes to reign in on-going deficits it should be recalled that doing this during a recession is counter productive and likely to slow your recovery path.
By accident or by design the Government has done this right. Cuts that affect a larger part of the population and affect employment directly or indirectly should be directed to the time when world and national growth have reached a permanent recovery.
Thomas Paine
Not sure that an abusive answer contributes to the debate. Why is it a stupid question? If anyone has a chip on their shoulder, the tax differential between 150k and 49,998 is $48,250 (plus loss of all “middle class benefits”). What about this is not already contributing at a reasonable level?
Why is Wayne Swan Treasurer? Just listening to Lindsay Tanner on Lateline. For a start, he looks like he doesn’t sleep anymore - Wayne looked pretty well-rested. Lindsay sounds like he actually understands what he’s saying, Wayne sounds like he’s reading his lines. I’ve nothing particular against Wayne Swan, but he’s occupying an office that’s beyond him.
Is Lindsay Tanner doing all the work???
AA, that was a stupid and uncalled for comment to what was probably a rhetorical question designed to make a point rather than elicit an answer.
A budget that looks after Labor’s interest rather than the nations?
No surprise there.
I wonder that Jenny Morris doesn’t go the whole hog and question why not the full ‘A’ Team of Gillard / Tanner rather than the Team Scum we have now?
Which of the interests in the Budget are particularly focussed on Labor James?
Building things is classic left politics, but surely even the most blikered can see there are huge economic advantages in improving the freight and transport infrastructure? Are you suggesting we’d be better off with a budget surplus and no infrastructure spending? Please explain further.
Also not sure why Gillard isn’t in the public eye more often, and Tanner does seem very useful. My suspicion though is that given the Departmental structure, the actual Minister makes very little difference. More so, I think that the individual ministers matter little, under the tightly controlled rule of KRudd.
Actually the tax scales for 2008-2009 are from $80 001 to $180 000 and $180 001 and above so there is no change in TAX RATE from $149 999 to $150 000. You are right that above that there is a drop off in the middle class welfare but seriously, if you are making $150 000 then you pay roughly $46 000 in tax, leaving you with a little under $285 A DAY! Some people only get that a week so quit your whining. We are not in a minning boom anymore so there is no way we can afford to pay welfare to people on high incomes.
Also, check out how the tax scales work, you only pay the highest rate of tax on a portion of your income. i.e. the difference between tax @ $180 000 and $180 001 is an extra 45cents as you only pay $58 000 on the first $180 000 plus 45cents in the dollar for every dollar OVER $180 000
http://www.ato.gov.au/individuals/content.asp?doc=/content/12333.htm
can someone tell me why we continue to keep the first homebuyer’s grant? that is the single most ridiculous policy to keep in the current climate. the economist magazine did a fantastic piece on the extreme negative of encouraging home ownership in april, i suggest everyone have a read.
while the government cant encourage people not to take out loans and go into more debt at this time, as it is trying to encourage spending, surely they realise that by implementing this first homebuyers grant at this time takes money out of the economy over the next 15-25 years rather than putting it in… encouraging people mortgaging themselves up to their eyeballs so they can get a free $7,000-$14,000 is not good policy and it ends up being counter intuitive, as these people will end up putting the lion’s share of their income into paying off debt rather than spending it in the economy. if you want to keep tradesmen in work, get them to work on the infrastructure initiatives that youre announcing!
tony, in response to 2,
income is different from wealth because the assumption is wealth has already been taxed. if you keep a portion of your after tax income every year for 15 years, it creates wealth. any additional flows that come from reinvesting your wealth also get taxed at your marginal rate. why punish people with good saving practices and tax planning by taxing their stockpile rather than additions to the pile?
Hi Damnumalone
I think the attraction of the first home buyers grant is that it stimulates the building industry and maintains/increases housing prices. Its important that housing prices dont drop as 2/3 of the relevent (voting) population either own a home or are paying one off. The FHBG is not a policy to simply increase home ownership, it is designed to protect the majority who have an interest in home prices rising.
Hi Zarb,
thanks for your response, I think you make some good points that the FHBG:
1. stimulates the building industry
2. maintains house prices
3. is important to 2/3 of the voting population who own homes.
in response to you
1. I would suggest that there are better ways to stimulate the building industry apart from the FHBG. One would be to put the money into infrastructure spending and write in a clause on any contracts for major infrastructure projects (education building, roads, ports, etc) that a significant percentage of the building of these contracts needs to be sub-contracted to smaller businesses and individuals, rather than have the majority performed by Leightons, etc. That way, you are including the entire building industry in your stimulus. A second way would be to provide the money for an extentions to existing homes grant, or a general maintenence grant, allowing existing home owners to spend money in the building industry on home improvements and not forcing them to take on years of debt as a result. I would also argue that the $14,000 boost for existing homes purchased has little to no effect on the building industry, but really gives solicitors, valuers and conveyensors work, rather than tradesmen. People tend to buy their first home if it is already built and then sacrifice luxuries to make the repayments.
2. there is a mixed bag of evidence of the effectiveness of the FHBG to maintain house prices, but economics tells us that creating such a grant should actually create an unnatural increase to the value of house prices by an amount proportionate to the grant at a point in time, rather than cause real growth in long term house prices. The FHBG is only effective in the short term on house prices and the trade off is putting households into a large amount of debt, that frankly, at the moment really needs to be flowing into the economy rather than into the pockets of the commonwealth bank.
3. I think this is the most important figure. 2/3 of voters own homes and want to see an increase or at least a stability in their house price. so the government, by creating the perception that it is boosting the housing market and ensuring its long term up trend (while it really isnt, FHBG is a short term boost), looks like its doing something. The net effect though is that in 5 years time, when interest rates recover and these FHBs who got in with low interest rates and repayments, suddenly find it harder to make their repayments they… put their house on the market, causing house prices to fall. It might look like a good idea and it sounds like the government is encouraging growth, but it is really encouraging a medium to long term correction. if 2/3 of voters were smart, they would be against it, or at least realise that their are better ways to boost the economy.