The federal budget will return to surplus in 2019-20, with Treasurer Josh Frydenberg unveiling a surplus of $7 billion, the first since 2007, in addition to $20 billion worth of tax cuts over the forward estimates, billions in new infrastructure investment and spending targeted at spots of political trouble.
In a document light on any overarching narrative, but long on spending commitments designed to shore up the government’s vulnerabilities, the government has adopted a firefighter approach to its political troubles. Its aimed a hose of money at at-risk seats or areas where Labor is threatening it. Despite that, the government has kept its fiscal discipline relatively intact: new spends have been offset by savings elsewhere, with spending falling as a proportion of GDP — though purists will lament the missed opportunity to return to surplus a year early and begin paying down debt.
However that may turn out to be the right decision, with a softer economy forecast than just four months ago in the 2018 Mid-Year Economic and Fiscal Outlook (MYEFO).
GDP forecasts for 2019-20 and 2020-21 have been revised downward from 3% to 2.75%, though Treasury still forecasts 5% unemployment for the next few years. Wages growth forecasts have also — yet again — been revised down, and household consumption has also been revised down to 2.75% compared to the 3% forecast in MYEFO.
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As a result, the government’s immediate election bribe — an expansion of the low- and middle-income tax offset targeted at workers on up to around $90,000 and capped at $1080 — may prove to be well-timed, with eligible households receiving the offset with their tax returns later this year. High-income earners, on the other hand, will have to wait until the 2020s to enjoy the benefits of changes to the tax thresholds that will cost around $19 billion over the forward estimates in total, and much more through the 2020s.
The government is also spending around $4 billion in additional infrastructure spending around the country and has promised a fast train between Geelong and Melbourne, committing an additional $2 billion to the project — but not until the 2020s. It will also establish a Fast Rail body to progress the construction of high-speed rail connections to Sydney and Melbourne from regional areas.
The budget should be an easy sell — the Coalition can claim both fiscal rectitude and an abundance of spending and tax cuts to shore up its fortunes, with few losers and plenty of winners. The government also has around $3 billion in unannounced measures up its sleeve, giving it some more announceables over the next five weeks. Labor, however, will have access to the same budget parameters, and it has already taken decisions that mean it will have more room to manoeuvre when it comes to its own tax and spending plans.