Originally this post was just going to be discussing the budget last night but that changed today when Katy Gallagher was found to be ineligible to stand in Parliament due to being a dual citizen which then caused the resignations of 4 other MPs. In this blog I’ll start by discussing the budget and then finish with the citizenship issue.
Last night Scott Morrison delivered his third budget which will almost certainly be his last one before the next Federal Election. As such this budget drew a lot of attention as to what sweeteners Morrison would include for the public particularly with the Government anywhere between 51-49 to 53-47 in the polls. In that sense I don’t think the budget was a big spendathon with the tax cuts that the government plan to implement for income earners not kicking in until the next financial year post the next Federal Election.
The budget website (1) has a good overview on the budget measures from last night. On the numbers itself the government will have a debt of 14.5 billion dollars in 2018-2019 which is down from 18.2 billion in the current financial year.The following year would finally bring the long awaited surplus that we have been waiting for of 2.2 billion dollars and then increasing to 16.2 billion by the 2021-2022 financial year. The net debt of total gross income would peak at 18.6% of GDP and would decrease from that point on. On spending and taxing the government has set limits to what they can spend and tax with spending around 25 percent of GDP and tax at 23.9 percent of GDP which is the level it was at in the last year of the Howard/ Costello government and before the global financial crisis which obviously involved increased spending and decreased taxation by governments. On the budget numbers last night Economists thought the numbers were not bad but they had a few caveats. Firstly the Government were lucky last night with an extra 34 billion dollars in revenue and they only spent 18 billion dollars of those last night which is prudent based on us coming into an election campaign, obviously if the government spend more money on election promises then that surplus will shrink. Also there is an assumption that wages will increase by 3.5 percent which it is currently at 2.2 percent and unemployment is staying stubbornly at 5.5 percent and the USA have only just seen wage growth at this 3.5 percent rate after 2 year with unemployment at 4.9 percent. Lastly is the China risk and if China’s Economy slows then that will slow our economy and lower GDP growth means less revenue coming through and that will also put a dent on the impact of a return to surplus.
(2) has a good table explaining the biggest measure of the tax changes which is the smoothing of the tax rate to ensure less people face bracket creep from working more and suddenly have to pay more tax.
So what is happening is from 2018 People in the 32.5% tax bracket won’t have to pay 37 percent tax until they are earning $90,000 a year rather than the 87k currently. Then from 2022 the 19 percent lowest tax rate will apply to those earning 41k a year rather 37k a year and then the second tax rate will only apply to from 120,001 dollars to 180k. Lastly from 2024 the plan is to only have three tax rates that would simplify the tax system with only people above 200,000 dollars a year paying the 45 percent tax rate. This has is on top of a one off payment of between 200 to 530 dollars a year for low and middle income earners that will be made as a one off “Harvey Norman” payment at the end of the year which would then be usually spent on one off payments rather than possibly be saved if the money came in the 10.30 a week saving on tax in a pay cheque that is the usual way to implement tax cuts. This measure has been criticised by those in the Union movement and the Australian Council of Social Services as well as by some of the cross bench for being a move away from the progressive tax system. This is because it seems unfair to some that someone on 41,000 is now paying the same tax rate as someone who is earning close to 200k a year, my argument to that is that it will still be progressive to a degree because the more you earn the more money that 32.5 percent of tax will cut into. I have more of an issue with the long term nature of this bill in that it takes until 2024 for the full policy to be implemented and so the cost of this measure is minimal in the budgeted forecast but will blow out to 140 billion dollars by full roll out which may then lead to other measure needing to be rolled out to offset those measures. I also think that when paired with the company taxes this tax cut does look like another good outcome for the big players while Newstart continues to be low for non workers and John Howard added his voice to those who called for Newstart to increase this afternoon (3). My worry for increasing Newstart in the past is that people have called for Newstart to increase at the expense of the Disability Support Pension for instance and that’s wrong because Newstart is meant to be just a temporary support until someone returns to work, the DSP is a much more permanent support mechanism and as such should remain higher than the Newstart rate. I predict that for the government to get action on either of the two tax increases there will need to be movement on Newstart.
Some of the other measure in the budget is nicely summarised in the “winners and losers” ABC summary (4). Other than the tax rates two of the bigger spending measures comes from Infrastructure spending of 24.5 billion dollars on various road and rail projects in Australia although some of these measures are re-anouncements of old projects and also aged care spending who will now be able to work more without it cutting their pension amount, they will be able to mortgage their homes to access government fortnightly payments and there will be more home care plans available allowing more older Australians to stay in homes rather than moving into retirement homes or nursing care. That second aged care initiative will be a kick in a gut to first home owners who will now see less homes be sold by elderly members to open up property along with their being no real initiatives listed for them this year with the government defending their half hearted initiatives for housing last year. Health is also a winner for this years budget with new drugs being added to the PBS scheme, more money listed for health care research and added money for various mental health schemes particularly those for the elderly who have the highest suicide rates in our population. Most of the other initiatives are smaller impacts and can be found in the reference I listed above.
As with all budgets there are losers as well as winners and for the most part as with last years budgets I think the government have done a good job of isolating those losers to a voter base that is either unpopular or unlikely to vote Liberal anyway. The big savings come from chasing the so called black economy to target cash payments in particular that are not being taxed at all or are being underreported for tax purposes. The government is therefore stopping cash payments of over 10k for good and services for businesses, this would particularly be helpful to stop undisclosed cash payments made by terrorists or drug dealers. The government hopes this raises 5.3 billion dollars a year. On top of no moves to Newstart the government is also hoping to catch more fraudulent welfare reporting with increased data matching with the ATO, they also plan to make migrants wait an extra year to access government services. I for one think it’s ironic that the government penalise people making honest mistakes of not reporting income correctly but when Centrelink make an error that can lead to underpayment or no payment for weeks if not months on end then they see no penalty. From (5) the government is also cracking down on illicit tobacco companies and Tech giants not paying adequate tax hoping to claw back 10.6 billion dollars in revenue. On the technology giants Scott Morrison is about to release a white paper on taxing the big companies who pay no tax on the profits earned in a particular country by combining with other G20 countries to come up with a united effort to fight these companies paying no tax.
The Bill Shorten response came by twitter to say this was another budget which prioritised the big end of town over fairness and so his response on Thursday night will be interesting to see how much he mirrors on what he still calls a terrible budget. I thought Chris Bowen was much more measured focussing instead on the Government’s small budget surplus that he said was not suitable to facing any international headwinds and he says some of the measures are not coming into place until too long into the future which is an inadequate commitment as they could be well out of office by then. I think that last line is ironic given that Labor long planned to move to a 10 year budget outline.
The other big news to come out today which almost overshadowed the government’s budget was the Citizenship issue rearing it’s ugly head again. It started with the high court ruling ACT Senator Katy Gallagher was ineligible to stand as a member of Parliament at the last election as she was a British Dual Citizen at the close of nomination. This was seen as a surprising decision to some because Katy Gallagher made an effort to start the process of renouncing her citizenship before the close of nomination which she thought applied for the part of the constitution that states that reasonable efforts need to be made to renounce citizenship. It is clear from this High Court Decision that reasonable effort only means that you are safe if you try to renounce dual citizenship but then that country denies you doing so which is the case for former senator Sam Dastyari and his Iranian Citizenship. The High Court also said it was not good enough to not allow time for the Embassy to process citizenship renouncements because you could follow the paperwork up or renounce in person at a embassy which some politicians have done previously. (6) now sets out what I now have long been advocating which is that there will a super Saturday of By Elections as 4 other MPs had used Katy’s court case as a test case to see if they were eligible to stand. The 4 other MPs to resign today because they are in the same or immaterially different case is Justine Keay, Josh Wilson and Susan Lamb the Labor members for Braddon, Fremantle and Longman and Rebekha Sharkie the Centre Alliance and former Nick Xenophon member for Mayo. The seat of Perth would also be up for an election following the shock resignation of Tim Hammond who recently was named only behind Julie Bishop as person most likely to be next PM from Western Australia. Now Labor would feel confident of holding Perth, Braddon and Fremantle but Longman will be interesting as Pauline Hanson recommended preferences against Wyatt Roy and the Liberal Party at the last federal election which resulted in their preferences going 60-40 percent in favour of Labor which is against the grain of preferencing flows from One Nation to Liberal post election. The seat of Mayo will also be intriguing because Rebekha Sharkie in part won the seat of Mayo at the last election because of the unpopularity of Jamie Briggs who had had some scandals plague his candidature. The other thing that this citizenship fiasco reopening today has brought up is the possibility of a referendum to amend Section 44 of the Constitution to allow dual citizens to run for this parliament. My problem with this measure is still that I can’t see the public supporting making life easier for politicians even though I now concede it is not practical to stop such a large amount of people from running for Parliament. I have noted Bill Shorten now sounds more in favour of a referendum after having egg on his face today following his pronouncement that Labor had better vetting processes and would not be caught up in this fiasco.
Keep an eye out on Friday for my Summary of the Budget in Reply speech of Bill Shorten summary.