The federal budget continues the government’s tight control over spending, with program spending growth predicted to be the lowest in 50 years.
Awash with tax revenues from a surging jobs market, recovering resource prices, and higher consumption, the federal government has unveiled a modest medium-term plan to partially compensate for tax bracket creep, while continuing to invest in research, innovation and infrastructure.
The shape of the 2018-19 Budget continues the Turnbull government’s fiscal strategy of gradually winding down spending, while capping tax revenues at current levels. Since 2016 the government has legislated $41 billion in savings, and required all new spending to be offset.
In this Budget, the government has eschewed any major program cuts, with the net of all spending decisions in the Budget, contributing to a modest $404 million improvement over four years.
The Budget predicts a return to balance next fiscal year, with surplus rising to over 1% of GDP over the medium term. This has seen net debt peak this fiscal year, and is expected to gradually fall from 18.6% to 14.7% of GDP by 2021. But with no long-term commitment to use rising surpluses to aggressively pull down debt.
Treasurer Scott Morrison said the government would not be tapping the Future Fund to lower gross debt, claiming it would be financially foolish to raid the fund. The fund was originally set up to fund the Commonwealth’s superannuation liabilities.
Average annual real expenditure growth remains below 2%, which the Budget documents claimed is the lowest in 50 years.
The government has formalised what it is calling a “speed limit on taxes” committing to keep taxes at the current share of GDP of 23.9 %. Morrison told the Budget lock up, this would be a backstop on spending.
The Budget commits funding of $24.5 billion to new major infrastructure projects, mostly on transport — almost all road and rail projects. In this Budget, this includes $3.5 billion for a new program called Roads of Strategic Importance, a $1 billion Urban Congestion Fund and a $250 million fund for the development of major project business cases.
The tax cuts have been back loaded to begin to cut in as the Budget returns more solidly to surplus in the early 2020s.
The underlying strength of the economy has seen a dramatic improvement in revenues, with tax receipts up by $8.2 billion since the last forecast late last year. The Budget forecasts continued strength in revenues, with total revenue expected to be $486.1 billion in the upcoming fiscal year, up 6.6%.
With world markets once again growing, the economy is predicted to maintain its current strength, with GDP growth estimated to continue to track at around 2.75%. The economy is in its 27th year of continuous growth. Inflation and wages are predicted to rise modestly, but unemployment is still stuck at above 5%.
This compares with the US where unemployment is now down below 4%.
The major savings measures announced over the next four years are:
- $415 million in health savings, from lifting the number of GPs in regional areas;
- $302 million in PBS savings through more use of generics and biosimilar drugs;
- $300 million from improved welfare recovery; and
- $256 million in efficiencies from the creation of the Home Affairs portfolio.