The Australia Institute 2019 Budget Wrap

Our team of economists and researchers have cast their eye over the budget papers to bring you everything you need to know and everything the government has tried to bury.

The centrepiece of this budget is a radical assault on the jewel in the crown of Australia’s progressive economic architecture — our progressive taxation system. The top end tax cuts are a plan to weaken our progressive tax system, overwhelmingly benefiting the wealthiest Australians, while everyone else will get only crumbs. The government’s plan to flatten the tax system will bake inequality into the system, making inequality worse over time.

Meanwhile, Newstart has been ignored — despite hundreds of billions in tax cuts, money could not be found for increasing Newstart, further driving people into poverty. Belatedly, the government has at least announced that the $75 one-off energy supplement will be extended to those on Newstart, which was a cruel omission, but nothing compared to the cruelty of cutting the energy supplement to new Newstart recipients, which Australia Institute research was instrumental in stopping just last year.

Last year’s decision to cut the ABC’s funding by $83.7 million dollars has been cemented. In some positive news, $100 million has been allocated over 4 years to establish the Commonwealth Integrity Commission. Thank you, with your support and our research we have taken a federal corruption watchdog from pipe dream to cross-partisan reality in the space of a few short years. There is a long way to go to ensure we have a proper agency with real teeth, but the argument as to whether Australia needs a federal ICAC has been won.

Finally and tellingly, there is more money allocated to disaster relief in this budget than there is to address climate change over the next 15 years.

Ben Oquist
Executive Director

. . .

  • The radical plan to flatten Australia’s progressive tax system
    by Matt Grudnoff
  • Macroeconomic Objectives: surpluses and debt
    by David Richardson
  • Who really ‘manages’ the economy?
    by Richard Denniss
  • Did the mining industry save the budget? 
    by Rod Campbell
  • Wages: Oops, They Did It Again!
    by Jim Stanford, Centre for Future Work
  • 23.9 percent tax speed limit is arbitrary 
    by Anna Chang
  • Men get twice the benefit from tax cuts as women
    by Ebony Bennett
  • No joy for the ABC 
    by Ebony Bennett
  • Forget an increase to Newstart
    by Travis Hughes
  • Return to surplus a missed opportunity to restore foreign aid funding
    by Bill Browne
  • No HELP for students in an election budget
    by Travis Hughes
  • Why the average isn’t average
    by Anna Chang
  • If only roads could vote: the view from Tasmania
    by Leanne Minshull
  • The State of play in SA
    by Noah Schultz-Byard

Climate & Energy Program

  • Cuts to climate and energy budget
    by Tom Swann
  • White flag retreat on coal
    by Dan Cass
  • Disaster relief — paying for the symptoms, avoiding the cause
    by Mark Ogge

The radical plan to flatten Australia’s progressive tax system

By Matt Grudnoff

Budgets are about values and the government has left us in no doubt about its values. They have been very upfront that they’re about lower taxes. What they have been less upfront about is the spending cuts that they will demand with those tax cuts in order to achieve their other stated aim of a surplus.

If you hear this government talk about tax cuts then you need to remind yourself that they’re also talking about spending cuts. That means less spending on health, education, aged care and all the other services that Australians expect.

The income tax cuts announced in the current budget build on the income tax cuts announced in last year’s budget. Last year, like this year, the government hopes that people will focus on the well targeted tax cuts to low and middle income earners in the short run and ignore the gutting of the progressive income tax system in the later years.

The government’s mantra of flatter simpler taxes really means big tax cuts for high income earners and a less progressive tax system. Progressive taxes are important because they mean those that can most afford it pay the largest proportion of tax. Such a system underpins other important progressive institutions in Australia like universal education and healthcare.

You don’t have to think back very far to the 2014 budget when the Coalition Government was telling us we couldn’t continue to afford a world class health and education system. The deficit that the mining boom tax cuts had created a decade earlier were being used as an excuse to cut spending on things that Australians clearly did not want cut.

The tax plan in this budget and last year’s budget would see the removal of the 37 cent tax bracket and a drop in the 32.5 cent tax rate to 30 cents. After it is fully implemented people earning between $45,000 and just under $200,000 would pay the same marginal tax rate of 30 cents in the dollar. That means someone on not much more than the minimum wage would be paying the same marginal tax rate as a bank executive on $195,000. This will create a tax system less progressive than the one we have today.

Our research shows that when the tax rates are flattened in 2024–25 a third of the benefit of these tax cuts will go to the top 10 per cent of taxpayers and more than half go to the top 20 per cent. By comparison those on the bottom 20 per cent only get 3 percent of the tax cut.

Infrastructure

The government announced new and old infrastructure spending with a focus on busting congestion. This congestion busting theme has been a regular talking point for the Morrison government for quite some time now. It has expanded beyond infrastructure to include population and migration.

The problem with the government’s plan to bust congestion in Australia’s largest cities is twofold. Despite efforts to tackle the problem in a more holistic way through organisations like Infrastructure Australia, the whole process remains very piecemeal. It is also very responsive with the government waiting for congestion to become a problem and then attempting to fix it rather than thinking about building infrastructure that will avoid the problems before they appear.

The other problem is that as cities grow larger additional road construction becomes less effective. There are many large cities in the world. Some are heavily congested while others handle congestion in a far more effective way. Those where congestion is less of a problem have integrated mass transit systems. Cars are not an efficient way of moving large numbers of people in a small amount of space.

The government’s $100 billion infrastructure plan is largely focused on building and upgrading roads. Building roads in large cities to bust congestion is like running on a treadmill; lots of effort for no forward motion. Roads won’t bust congestion, they’re just likely to stop it from getting worse quite as fast and the effectiveness of building more roads is will decrease over time.

Instead the government should be prioritising mass transit systems to transport the most people around the cities in the least amount of time. This will do more to bust congestion and will cost far less than constantly building more roads.

The rules I make are the rules I break

The government has made a big virtue of its unenforceable budget rules including its imaginary cap on tax revenue of 23.9 per cent of GDP. Much like its massive tax cuts that are designed to reduce the progressive nature of income tax, these rules are more about ideology than economics. Four months ago the government laid out two other rules in December’s Mid-Year Economic and Fiscal Outlook (MYEFO). The first rule was that all new spending measures would need to be offset by reductions in spending elsewhere in the budget. The second was that any improvements in the budget because of an improvement in the economy, like higher than expected growth or commodity prices could not be spent or given away as tax cuts, but rather needed to instead increase the budget bottom line.

The government showed how important these rules are by breaking both of them in this year’s budget. To be clear both these rules, along with the 23.9 per cent cap on taxation, are bad ideas. They’re designed to limit the hands of governments in delivering the services that Australians want. In a democracy people should be able to elect governments that set taxes and spending to deliver what they want.

The government’s decision to break them shows how pointless they actually are. In net terms the government introduced new spending at a cost of $10.9 billion over the next four years. If the government was keeping to its own fiscal rules then new spending programs would be offset by spending cuts so the net increase in spending would be zero. They missed that by $10.9 billion.

The government’s budget papers predict that changes in the economy since the MYEFO could add $12.7 billion to the budget bottom line over the next four years. If the government was following its own fiscal rules then all of that should be banked as bigger surpluses. But the government has forecast that only $2.4 billion will go to the predicted surpluses, the remaining $10.3 billion will be spent on things like the governments income tax cuts.

Given the government can’t keep its own silly fiscal rules it should probably refrain from calling on other parties to follow them.

Spending versus revenue

If you only listened to the government you might think that the reduction in the deficit was caused almost exclusively by their spending cuts and fiscal discipline. But the government appears to have overlooked the real culprit, increasing revenue. If we look at both spending and revenue as a percentage of GDP we see that since the current government came to power revenue to GDP has increased by 2.7 per cent while spending has only fallen 0.8 per cent. That means that almost 80 per cent of the reduction in the deficit has come about because of increases in revenue and just over 20 per cent has come about because of spending cuts.

As the graph below shows spending has fallen slightly as a percentage of GDP but revenue has grown substantially.

Of course you wouldn’t know that it has been revenue that has mainly reduced the deficit from just listening to a government that wants to tell everyone they’re all about lower taxes.

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Macroeconomic objectives: surpluses and debt

By Dave Richardson

The headline the government hoped for would have stressed the return to surplus in 2019–20. In that year the government has forecast a surplus of $7.1 billion and a total surplus of $45 billion over the forward estimates (by convention the forward estimates include the years 2019–20, the budget year, to 2022–23 inclusive).

Nothing is certain in this world and the budget papers point out that while the $7.1 billion surplus is the central estimate it could be anywhere within a $41.1 billion band and so they are 70 per cent sure the final outcome will be somewhere within a range of a $27.7 billion surplus to a deficit of $13.5 billion. The last time a treasurer actually admitted the estimates are uncertain was Phil Lynch following the presentation of the 1977–78 budget. Lynch referred to ‘rubbery figures’ in his address to the national Press Club and that phrase destroyed his credibility.[1] Nevertheless what the budget papers call ‘confidence intervals’ around the estimates remind us of the very shaky ground on which budget forecasts are made.

Beyond the forward estimates the government now forecasts a surplus of one per cent of GDP by 2026–27. In his speech the Treasurer bragged that ‘surpluses will continue to build toward one per cent of GDP within a decade’. The budget papers also say ‘Continued fiscal discipline will ensure these surpluses build over time and exceed 1 per cent of GDP in the medium term’. The idea of targeting a surplus seems to have a good deal of support. However, we wonder if people really understand what it means to run a surplus. For example, the government might get a good deal less support if we rephrased the objective as saying ‘we intend to tax you around $18 to 20 billion more than we need to cover government spending’. We have earlier pointed out the tribulations involved in targeting a budget surplus when economic conditions may be inappropriate.[2]

Paying off debt

Another stated objective is to pay off government net debt. The Treasurer’s speech says ‘As we climb the mountain and reach our goal of eliminating Commonwealth net debt by 2030 or sooner’. The grammar is unclear but the point is made. The Budget papers repeat the point saying ‘over the medium term, net debt is projected to be eliminated entirely’ (p 1–1). Later in the budget papers the zero debt target is expected to be achieved in 2029–30. Net debt is expected to be $374 billion at the end of June 2019. Our calculations suggest that the projected surpluses will not be sufficient to meet the zero net debt target in 10 years without further expenditure cuts into the future.

Earlier the Prime Minister Scott Morrison announced he would eliminate net government debt within 10 years. He said ‘we can wipe out our net debt within the decade. That’s my goal’.[3] We take that to mean the figure at the end of the year 2028–29 should be zero. When we compare the zero net debt with the projections in the Midyear Economic and Fiscal Outlook (MYEFO) we find that net debt will still be around $99.5 billion June 2029. That is quite inconsistent with a zero net debt promise. To square the circle the government is going to have to make additional cuts of around $100 billion over the next decade. Cuts of those magnitudes risk causing an economic slowdown and make jobs targets more difficult to achieve.

Less than a fortnight before the Morrison speech The Economist reflected on government debt and said ‘government borrowing looks less scary than it used to, and some mainstream economists are reconsidering the profession’s aversion to debt’.[4] The Economist’s present position of course contrasts dramatically with the language of the Coalition in Opposition and even the more moderate recent rhetoric. In 2013, then Opposition Leader Tony Abbott used very emotive language: ‘The current government has turned a $20 billion surplus into deficits stretching out as far as the eye can see…The current government has turned $50 billion in the bank into debt spiralling towards $400 billion that our children and grandchildren will struggle to repay’.[5] Shadow treasurer Joe Hockey said the government had ‘’lost control of the budget and is losing control of the economy…’It is the same old Labor and the same old Kevin Rudd…’The budget is in free fall’.’[6] There are severe theoretical difficulties with the abstract reasoning behind the deficits hurt thesis. Nevertheless the Coalition in government repeated its position that the ‘budget repair’ is an important goal: ‘Budget repair remains a key element of the Government’s economic plan’.[7] But of course the Coalition’s language began to express less urgency.

Dodgy bits

It has to be said that the surplus estimates are also built on some dodgy pea and thimble ‘tricks’ and stratagems.

Prepayments

One of those is the bringing forward of $1.275 billion in local government financial assistance grants from 2019–20 to the present year. 2018–19. The justification for this is ‘to enable the immediate use of these funds. This will provide greater flexibility and support to local governments, particularly in areas affected by severe or unexpected weather events’ (BP No 2).

NDIS

Another source of the surplus for 2019–20 comes from the $1.6 billion underspend on the National Disability Insurance Scheme. The budget papers rationalise it saying the underspend

“…largely reflecting the slower than expected transition of participants into the NDIS. This includes a decrease in receipts in relation to State and Territory contributions to the NDIS and increases in other Australian Government disability programs, as the Australian Government ensures clients yet to transition into the NDIS continue to receive support”

Prior to the budget, there had been concern that an underspend on the NDIS would be returned to the budget and Cabinet has been reported as discussing whether to ‘disguise the unspent money or put it on the bottom line and reduce the deficit for this financial year’.[8] The idea of disguising awkward things is always a temptation.

According to press reports, ‘Labor and the sector believe there will still be billions in unspent money and this should not be used to deliver a surplus. The state Labor Treasurers of Victoria and Queensland sent a joint letter to federal Treasurer Josh Frydenberg calling on the government to release NDIS money so it could be spent on the disabled, not hoard it to prop up a surplus’.[9] As part of the government’s response, it is reported that Prime Minister Scott Morrison ‘demanded the National Disability Authority lift its game and pay the providers properly and promptly’. That could involve an additional $500 million spending now and in 2019–20. Apparently, there is evidence of poor administration and distress to the part of the disabled and their families by underpaying and paying slowly. Nevertheless, the PM says “The NDIS is fully, 100 per cent funded for now and into the future as it always has been’’ (Coorey 2019).

That leaves us with two explanations being proffered in relation to the underspend; the Government’s glossy focus on slow implementation or accusations of ‘poor administration and distress’.

Future Fund

The Future Fund is also implicated in arguments about the true size of the surplus. For some years the budget papers have excluded the Future Fund in the presentations of the budget balance.[10] In this year’s budget we now find the relevant budget balance figures ‘Excludes expected net Future Fund earnings before 2020–21’ or ‘The underlying cash balance includes expected net Future Fund earnings from 2020–21’. It should be stressed that this is a brand new development. In the latest Mid-year Economic and Fiscal Outlook the Future Fund earnings are excluded from the budget balance.

This is significant since Future Fund earnings are estimated at $6.6 billion in 2018–19 and $5.1 billion in 2019–20. Nevertheless including the FF earnings in the reported budget balance will have the effect of increasing the surplus by amounts of that order.

In explanation of the new treatment of the Future Fund the Budget Papers say:

Under the Future Fund Act 2006, net Future Fund earnings will be available to meet the Australian Government’s superannuation liability in 2020–21. From this time, the underlying cash balance includes expected net Future Fund earnings (p 3–18). This was always the case and yet previously the government provided estimates of the Future Fund earnings and excluded them from the budget balance. Looking past 2019–20 it is certainly convenient to include those in the budget balance.

Company tax cuts

Nothing was said in the budget but clearly the government’s surplus objective was massively assisted by the failure of the government to get its way earlier in its attempt to cut the company tax. The company tax cuts were limited to businesses with turnovers up to $50 million. The budget announcement that company tax reductions for those businesses will be brought forward will reduce revenue but the reductions in revenue would have been so much higher again if the original plan had gone ahead. Our estimate is that preventing the company tax cuts for big business in particular has saved revenue of $91 billion over the next decade.[11]

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Who really ‘manages’ the economy?

By Richard Denniss

Riddle me this: if “free market” politicians think that the role of governments is to get out of the way, then what do they do all day while “managing the economy”?

Interest-rate policy has been delegated to the Reserve Bank of Australia and the Coalition’s fiscal policy is to offset any new spending measures with spending cuts somewhere else, so what economic levers does a Coalition treasurer have to “fine tune” the economy with? I have lived in Canberra for 20 years and I’m yet to see the room with dials from which our treasurers kickstart a failing economy or put the brakes on a booming one.

Here’s a tip: if something goes well in the economy, it’s because of “good economic management”; and if it goes badly, it’s “market forces”. Heads I win, tails you lose.

Budgets matter, but not in the technocratic terms of “economic management”. They can make a big difference to the lives of individuals in the short term and to the shape of our society in the long term.

Australia is one of the richest countries in the world for the simple reason that, over the past 70 years, we have avoided war on our own soil, invested heavily in our people, encouraged people to trust each other, and built the kind of social and economic infrastructure that makes individuals and companies believe that investing in new ideas and new ways of doing things will be a safe and profitable thing to do.

History and international experience make clear that it is not the specifics of a country’s tax or industrial relations system that determines economic success, but the willingness and ability of communities to trust each other, trust their institutions and work towards agreed long-term goals. If cutting taxes was the key to growing economies, then the Nordic countries would be broke.

It doesn’t matter how fast the economy is growing if it is heading in the wrong direction, and if 30 years of continuous economic growth hasn’t made us rich enough to afford the services we once had, then why would anyone believe that another 30 years of “great economic management” will make things any better?

This is an edited extract of Richard Denniss’ fortnightly column on neoliberalism in The Guardian

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Did the mining industry save the budget?

By Rod Campbell

There were plenty of headlines in recent weeks suggesting that the mining industry was going to save the budget…again. A few examples included:

Iron and coal to deliver surprise budget bonanza

Iron ore, coal to give $9.2bn budget surprise, pay for tax cuts.

Even Bill Shorten got into this:

“If we have a surplus, I will not thank the government. I will thank the Australian people and thank our export resources industry.”

So is the mining industry the source of all the budgetary good news?

No. The mining industry’s key contribution to the budget is via company tax payments. It typically pays around 4% of federal tax receipts, as shown in the chart below:

So if the mining industry’s contribution to government revenue is so small, why does it get so much credit?

Part of the answer is that commodity prices are hard to predict and can fluctuate a lot. Estimating how much company tax miners might pay is hard, or as Treasury puts it in the Budget Papers:

Commodity prices are volatile and the outlook for commodity prices remains a key uncertainty in the outlook for nominal GDP.

The Budget compares its results to the earlier Mid Year Economic and Financial Outlook (MYEFO) predictions, with the 2019–20 budget estimate shown below:

Highlighted in the third column, you can see that company tax was $3,400 million dollars better than Treasury expected. Higher than forecast commodity prices means that a substantial amount of is likely to come from the mining industry.

The commentators that credit this change as a ‘bonanza’ need to look at the fourth column above, showing that this change actually amounts to just 3.6% in company tax receipts, less than 1% of the $342,740 billion in total receipts.

It is only by comparing the volatility of mining’s tax payments to the final surplus that changes in minerals prices appear to ‘pay for tax cuts’. In fact 95% of our revenue comes from other industries and parts of the economy. Australia’s economy is diverse and based largely on services. The mining industry might provide the ‘surprise’, but it is the rest of us that provide the bonanza.

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Wages: Oops, They Did It Again!

By Jim Stanford, Centre for Future Work

You would think that after 5 consecutive years of wage forecasts that wildly overestimated actual experience, the government might have learned from its past errors — and published a wage forecast more in line with reality. But not this government. They are still trying to convince Australian workers who haven’t seen real average wages rise in over 5 years that better times are just around the corner. And rosy wage forecasts are helpful in justifying their equally optimistic revenue forecasts: since if Australians are earning more money, they will be paying more taxes!

So the 2019–20 Commonwealth budget, tabled Tuesday evening by Treasurer Josh Frydenberg, featured another valiant prediction that fast wage growth is indeed still “just around the corner.” Despite a slowdown in wage growth in the last months of 2018, this budget simply replicates last year’s wage forecast — but delayed by one more year. Crucially, there is no discussion justifying why Australian workers might have confidence in this year’s forecast, when the last five so widely missed the mark (and always in the same direction).

Our analysis of the 2019–20 Commonwealth budget focuses on the wages crisis facing Australian workers, and challenges the claim that cutting personal tax cuts can somehow compensate workers for the fact that their wages are not growing.

Annual wage increases generate compounding benefits for workers and their families: since each year’s raise is applied against a larger and larger base. That cannot happen with tax cuts: to the contrary, their incremental effect can only shrink over time (as tax rates get lower and lower). Moreover, tax cuts always come with a significant cost: the loss of foregone public services, income supports and infrastructure that is the inevitable consequence of government’s shrinking revenue base.

The tax cuts in this budget increase disposable incomes for workers by less than 1% (and by zero for the lowest-wage workers). In contrast, just one year of a normal wage increases delivers several times more benefits. And annual increases over three years (the term of the next government) delivers benefits dozens of times larger.

. . .

Men get twice the benefit from tax cuts as women

By Ebony Bennett

There has never been a federal Treasurer of Australia who wasn’t a man and there have been more Finance Ministers named John than woman Finance Ministers. It doesn’t take an economics degree to know those numbers are a problem.

When times are tough and services are cut, the burden falls mainly on women. Australia Institute research, after the horror 2014 budget, found that 55 per cent of the burden of budget cuts fell on women. When times are good and we cut taxes, it mostly benefits men.

The gender distribution from the Coalition government’s plan to flatten the income tax scales is skewed against women. By the time the tax cut is fully implemented, for every dollar of benefit women get from the tax cuts, men get two dollars.

The skewed gender distribution is in large part because men are over represented at the top of the income distribution, who get most of the benefit of the tax cut, and women are over represented at the bottom of the income distribution, who get very little of the tax cut. The gender pay gap is already an issue in Australia, and income tax cuts that benefit men more than women will only further widen the gap in post-tax income of men and women.

Figure 5 looks at the gender distribution of the tax cuts by decile. We can see that women get more benefit than men for the first four deciles, but these deciles get very little of the overall benefit. As we move up into the higher decile of the income distribution men get an increasingly larger share than women. In the top 10% of income earners men get almost three times more benefit than women from the tax cuts.

Last year, then Treasurer Scott Morrison scoffed at The Australia’s Institute’s distributional analysis, saying “You don’t get a blue and a pink form to fill out your tax return.”

It’s true that men and women fill out the same tax return forms, but men will end up with twice as much money in their wallet as women from these income tax cuts. The intention might not be to discriminate against women with tax cuts, but that’s certainly the outcome whether the government wants to acknowledge it or not.

23.9 percent Tax Speed Limit Arbitrary at Best

By Anna Chang

“That’s why under the Morrison Government, tax as a share of the economy will not rise above the 23.9 percent cap. We will put a speed limit on taxes, while our opponents will put a speed limit on the economy.”

— Treasurer Josh Frydenberg, 2019 Budget Speech

Josh Frydenberg has picked up where Scott Morrison left off, and used his first Budget speech to insist Australia’s overall tax level as a proportion of GDP must not rise above 23.9 percent.

But where does this very specific number come from? It turns out 23.9 percent is the average tax receipt to GDP ratio between the time of the introduction of the GST (2000–01) and the start GFC (07–08) — sounds a little random, right?

Choosing the time between the GST and the GFC on which to target overall tax levels is entirely arbitrary. It’s like if speed limits were set based on the average speed driven by cars between midday and 7pm.

In fact, even Treasury recognised the figure was only “an assumption … and does not represent a government policy or target”. It is also entirely reasonable for analysts to use a historical average for forecasting purposes.

However, Josh Frydenberg has now continued the fiction of the ‘23.9 percent tax speed limit’ declaring what was once just a reasonable forecasting assumption is now a strict cap, never to be breached.

While debate rages over specific tax policies like the Government’s fast-forward of income tax cuts for the top end of town, or the idea that maybe the tax office should stop giving cash bonuses for excess franking credits tax plan, a bigger discussion is missed.

It is a fact that Australia has the seventh lowest tax-to-GDP ratio in the OECD. Australia Institute research shows if we had the same ratio as even the UK (not known as a high taxation nation, let alone looking at Nordic nations), an additional $91 billion dollars in revenue would be collected every year.

In 2010 Australia voted for the NDIS and the corresponding tax increase designed to fund it. Capping tax revenue cuts across community wishes. A sensible debate would ask the democratic question: what sort of society — schools, defence force, environment, infrastructure, hospitals — do we want to build and what level of taxation will be needed to pay for it?

We know that taxes are what we pay for civilised society, but it’s only half the story. Deciding which taxes our society needs, and at what levels, is the crucial other half of our community responsibility.

An arbitrary tax ‘speed limit’ not only robs our community of the resources it needs, it suffocates the public debate required about what a fair and full tax system might look like. Civilisation does not stop at 23.9.

. . .

No joy for the ABC

By Ebony Bennett

The Coalition government’s decision to cut ABC funding in last year’s budget was widely criticised, but this year’s budget cements that decision.

Since 2014 more than $250 million has been cut from the ABC and this year’s budget continues the funding freeze announced last year. This means the broadcaster’s base funding will be frozen at 2018–19 levels for three years from July, a cut of $84 million, which was unchanged in this year’s budget. Base funding for the ABC is $3.16 billion from 2019–20 to 2021–22.

ABC Friends National has slammed the budget allocation for the ABC as ‘tokenistic’.

“The Treasurer announced $ 7.1 billion surplus and $158 billion in tax cuts,” said ABC Friends National President Margaret Reynolds.
“What the ABC got was less funding. I suppose that shows where the ABC rates in this Government’s priorities,” she said.

The announcement that $43.7 million will continue to be made available for enhanced news gathering” services in regional Australia over the next three years does not make up for the $83.7m cut from the ABC at this time last year.

It’s a death by a thousand cuts for the public broadcaster, which our research shows is Australia’s most trusted news source.

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Newstart recipients left out in the cold as Newstart freeze reaches quarter century

By Travis Hughes

The day after the budget, the Morrison Government announced in the face of mounting pressure that it would… extend its one-off $75 energy supplement to Newstart recipients. The overnight decision to spend $80 million shows just how easily money can be ‘found’ when politicians decide they now have a problem that needs solving.

Though a welcome shift from a pointless and punitive exclusion, it will come as small consolation to the over 700,000 Australians on the allowance.

The Coalition has now, for the 25th consecutive budget — that’s a quarter of a century — resisted community concern and chosen not to raise Newstart in real terms, keeping recipients well below the Henderson poverty line.

It was Australia Institute research which revealed the Coalition’s plan to cut Newstart, and even last year this cut was still on the Budget books.

Thanks to your support, the cut has been shelved by the Coalition — because before we can start raising Newstart we have to not reduce it further.

However our research shows that Newstart recipients are still being left out in the cold, with the frozen welfare payments diving even further below the poverty line in the last year.

A single person with no children on Newstart now receives just $350 per week with rental assistance. These unemployed Australians are living $173 dollars per week below the poverty line, which represents a very real barrier for those seeking work.

Of those forced into the Government’s compulsory ‘Work for the Dole’ program, their chances of finding employment are increased by an average of only 2 percent. The failure to turn up if you’re sick, even once, could lead to being cut off support.

Going further, for an unemployed family of four — two adults and two children — the total amount of government assistance is $797 per week, working out to almost 20% below the poverty line.

After the Centrelink robo-debt scandal, the Government has also decided to go a step further in automating the reporting of income, scraping in $2.1 billion in cuts over five years. There’s also $128.8m for rolling out cashless welfare management into more remote communities.

Continuing down this path of punishing our poorest and disciplining our most vulnerable in the name of budget repair is not responsible fiscal management, its a detriment to us all.

. . .

All Payne, no gain for aid

by Bill Browne

The budget confirms what we had been expecting: Australian aid will fall even further as a share of our economy to its lowest level ever.

The international target set by the Millennium Development Goals is 0.7% of a country’s Gross National Income, a target that had wide support in Australia (and which the Greens still retain as their policy). More recently, in 2010 the Coalition and Labor both committed to reach 0.5% of Gross National Income. In other words, the Australia government promised to spend 50 cents out of every $100 in national income on foreign aid.

In actual spend, former Prime Minister John Howard committed to doubling the aid budget in 2005, from $2 billion to $4 billion by 2010.

And in 2010, Labor and the Coalition promised to redouble aid again to hit $8 billion by 2015–16 (the 0.5% GNI goal). That is where the story strays south — and it has been trending down since.

Over Julie Bishop’s time as Foreign Minister, our foreign aid dropped from a high of $5 billion to $4 billion, even as inflation and a growing economy meant that it represented an increasingly smaller portion of our economy.

In 2017, Bishop explained that the “freeze” (cuts in real terms) would continue until the budget returned to surplus.

The Government says its surplus will come early — but it still won’t end the aid budget freeze before 2022–23.

With Julie Bishop no longer Foreign Minister, we can confirm that her legacy from her time as Minister represented the largest fall in the aid ratio in Australia’s history: from 0.33% of GNI to just 0.22%. New Foreign Minister Marise Payne is also set to oversee a significant fall in the aid ratio, down to just 0.19% in 2021–22.

That means less support for countries to undertake basic development work — provide electricity, housing, education, healthcare and many of the services Australians take for granted. As Australia struggles to address the increasing number and severity of extreme weather events (i.e. symptoms of climate change), so too do our neighbours — many who are even more vulnerable.

Admittedly, there is a small increase in funding for the Pacific region (to $1.4 billion) but it comes at the expense of assistance to other vulnerable places. At the aid budget lock-up, DFAT admitted the ‘step up’ in support to the Pacific (including East Timor) is paid for through cuts to Australia’s bilateral programs to Nepal, Pakistan, Cambodia, Indonesia and Bangladesh.

Another ‘loser’ in this budget is funding for climate change action. Prime Minister Turnbull announced at the Paris climate summit in 2015 that Australia will allocate $1 billion over 5 years. The final tranche of $200 million will be delivered next financial year and there is no further funding in sight. To some extent, aid for climate change has been ‘mainstreamed’ into existing programs (since good development should factor in climate change); however, there is still a need for dedicated climate finance through multilateral channels like the Green Climate Fund.

The UN Secretary General is hosting a Climate Summit in September and wants leaders to arrive with ambitious emission reduction targets and climate finance pledges, but don’t hold your breath. Prime Minister Morrison has already ruled out spending “money on global climate conferences and all that sort of nonsense”.

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No HELP for students in an election budget

By Travis Hughes

Budget 2019 is deafeningly quiet on the higher education front, with no substantial changes, or even very small ones.

The Parliament in September had already made changes to FEE-HELP to lower the repayment thresholds down to $44,999 — well below the median wage of $55,000.

There is a new $525 million skills package over five years for new apprenticeships and training hubs, vocational education and training likely being of bipartisan focus this election.

But this budget does nothing to address key issues facing students. Students and graduates making below the median wage are more likely than not to be facing the worst features of the labour market today through insecure work or underemployment.

One third of domestic undergraduate students are reliant on a form of income support, which remains low, including Youth Allowance which is far below the Henderson poverty line.

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Why ‘The Average’ Isn’t Average

By Anna Chang

We’ve seen a lot of big claims over this Budget week, one of them is that a couple on $200k a year is ‘middle income’. Let’s be clear: there is nothing ‘middle income’ about a couple earning $200k a year.

The Government are using this, and also that the average full-time wage is $82,000 as reasons why the big income tax cuts would benefit most Australians (which largely benefit high income earners) would benefit ‘most Australians’.

These claims are misleading at best.

Australia’s median wage is $55,000, which means half of Australians are earning even less.

In fact, earning $82,000 would put you at around the top 25% of income earners — not exactly ‘average’.

Read our full analysis on how high income earners are the big winners from the Government’s top-end income tax cuts > http://www.tai.org.au/content/analysis-54-tax-cuts-benefit-go-highest-income-earners

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If only roads could vote: the view from Tasmania

By Leanne Minshull

If you were trying to judge how the government was viewing their chances in the upcoming federal election by how they were spending in the budget, it’s clear they think they are a chance in Bass and Lyons and maybe even Braddon.

Roads in Lyons and Braddon were winners again with money allocated to a number of roads in the North West and the Tasman Highway. There was also $130 million for road upgrades between Hobart and Sorell but no detail on when or how the money would be spent.

Almost 35% of Tasmanian households rely on government payments and there is very little in the budget for them. It is also estimated that 10,600 Tasmanians will engage with the NDIS by July this year. Given the underspend in the NDIS, voters in Tasmania may not be as excited by the budget surplus as others.

There is some good news for the fire ravaged communities of southern Tasmania with MONA receiving $1.5 million to hold a major art installation in the affected areas. The show will no doubt bring badly needed tourist dollars to the region.

But this is a very creative ambulance at the bottom of the cliff with no fence being built at the top of it.

With 2.5% of Tasmania burnt over summer, broader funding for Tasmania’s Wilderness World Heritage Areas remains at the current funding level of $5.1 million per year until 2022–23.

Ecological forward estimates of climate impacts on Tasmania’s world heritage areas show increasing intensity and instance of fires. Yet, there is no economic forward estimates to fund a rapid fires response or other adaptation requirements.

The Government’s national natural disaster recovery funding, a $3.9 billion Emergency Response Fund will support future recovery efforts, rather than front load emergency responses.

Wilderness has an inherent value but it’s also a key ingredient in the tourism boom that underpins the Tasmanian economy.

Finally with no actual funding for a second Basslink, just the already allocated money for a viability study, the battery of the nation is looking a little flat.

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The State of Play in South Australia

by Noah Shultz-Byard

We’re all familiar with the saying; ‘A bird in the hand is worth two in the bush’. Well, the Federal Budget version of that maxim should probably be; ‘A humble spending announcement in the forward estimates is a far more reliable indicator of future government expenditure than promises made for the out years, known as the medium term projection’.

A little less snappy perhaps than the original ornithological proverb, but no less true.

The ‘forward estimates’ is the four-year budgeting period that outlines the government’s spending plans for the near future. Historically, if a project has been included in that earlier period, rather than the longer 10-year projection, it is far more likely to actually go ahead.

So, when it comes to the biggest South Australian infrastructure project, the North-South Corridor, it’s important to ask — how much of the funding committed to it is pledged to be spent in that crucial first four years? The answer, according to the ABC and others, is none.

SA Freight Council executive officer Evan Knapp says that all of the $1.5 billion pledged for the project in this Budget, as well as the $1.2 billion of Federal funding announced last year, falls outside of the forward estimates and as a result “our transport infrastructure funding has collapsed.”

The other difficulty for South Australia in the Federal Budget was a $517 million reduction in the amount of GST revenue the state was expecting to receive in the next financial year.

Unsurprisingly, questions are already being asked about how the state will deal with this budgetary shortfall. The best approach would be to expand the state’s revenue base, returning South Australia’s finances to health in a responsible and fair way. The worst thing for the SA Government to do in its next Budget, due in June, would be to go further down the road of service cuts and privatisation.

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Climate & Energy Program report

Cuts to the Climate and Energy budget

By Richie Merzian & Tom Swann

The Australia Institute’s Climate & Energy Program ran the #fairdinkum filter over the Budget, finding little to be excited about and a lot of bad news.

The Government’s centrepiece new climate policy, the so-called Climate Solutions Fund (CSF). The CSF is an extension of Tony Abbott’s Emissions Reduction Fund (ERF), under which the government pays entities to generate carbon credits by burying, reducing or avoiding emissions. The ERF allowed overall emissions to increase every year, and the CSF contains even less funding.

The new funding was announced in February as $2 billion over 10 years — and already it has been cut. From the Budget we now find the CSF funding will be stretched out to 15 years. The money will only be spent from 2020 and ramp up slowly, leaving funding below even levels seen under the Abbott government’s scheme.

There are a few other pieces of the Climate Solutions Package, including $1.4 billion for Snowy 2.0 — arguably an energy policy rather than climate mitigation — $61m for the energy efficient communities program, $56m for a feasibility study for the second transmission link between Victoria and Tasmania and $400,000 to develop a national electric vehicle strategy (not due till next year). Despite all the talk about energy security and reliability, the National Energy Security Assessment is “not on track”, having been delayed.

We see in the budget the net effect of meagre new spending and the end of old programs. Climate spending is cut and then flat lines, at just 0.3% of total government spending.

As we can see, the Abbot government cut climate spending drastically, but levels were somewhat restored after the Senate blocked the abolition of the Australian Renewable Energy Agency (ARENA) and the Clean Energy Finance Corporation (CEFC). Ministers now frequently praise the fantastic work of these agencies; they should also thank the Senators who voted to save them. Along with saving the RET, the Senate’s votes delivered $23.4 billion worth of investment in renewable energy, from 2013–2018 (see our Saved by the Bench report).

But the Budget Papers show that money is now running out, with ARENA scheduled to spend no money in 2022.

Figure: Budget shows ARENA runs out of money in 2022

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Retreat on coal

By Dan Cass

Gladly, Energy Minister Angus Taylor’s first budget statement will not fund any new coal, despite the Coalition’s rhetoric of the past few years.

The headline is $365 million for one-off Energy Assistance Payments to help people on social security with the rising price of electricity. However, as The Australia Institute pointed out, this program excluded Newstart recipients and within 12 hours (the morning after the budget), the Treasurer decided to include Newstart recipients, at an extra cost of $80 million.

The government is doubling down on Snowy 2.0, investing a $1.38 billion in Snowy Hydro Limited.

There is $3.5 million to belatedly work on the detailed design of the Underwriting New Generation Investment scheme. In February 2019, The Australia Institute released a legal opinion demonstrating the government would not be able to proceed, without legislation and it looks like the program will remain in ‘design’ stage for a while longer.

There are feasibility studies under Supporting Reliable Energy Infrastructure program of $10 million for new generation in Northern and Central Queensland, $50.4 million on rural microgrids and $56.0 million on the second interconnector between Tasmania and Victoria. Energy efficiency gets $79.2 million, mostly to businesses, but also for community organisations and households.

$3.2 million will help the Australian Energy Market Operator develop an actual plan for the NEM.

There is $400,000 to write a National Electric Vehicle Strategy (but don’t expect it till 2020).

$13.3 million goes to the Australian Energy Regulator, to keep up with the pace of reform required to implement the Finkel Review and $7.5 million over three years supports the Energy Use Data Model, to better understand energy flows in the National Electricity Market.

Finally for all the talk about energy security and reliability, the budget revealed that the National Energy Security Assessment is “not on track” and has been delayed.

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Disaster relief — paying for the symptoms, avoiding the cause

By Mark Ogge

The cost of natural disasters in Australia is large and growing, thanks in large part to climate change. This summer alone we have experienced unprecedented fires and floods from the top to the bottom of the country, and sweltered through the hottest summer on record.

In this year’s budget, the Government has recognized the need to increase its already sizable expenditure on natural disaster recovery creating a $3.9 billion Emergency Response Fund that will be provide up to $150 million per additional Commonwealth natural disaster funding, as well as well as a further $300 million disaster recovery funding specifically for the Queensland floods. The Emergency Response Fund comes from funding allocated to education and the National Disability Insurance Scheme.

The new measures are additional to the $775 million allocated to disaster relief this year alone, the $6.3 billion on drought support and over $3 billion of flood funding. While the full costs of the current Queensland floods and fires have not yet been tallied, the last floods in 2011 were estimated to be over $14 billion and the Black Saturday bushfires $7 billion. Expect more payouts as the number and frequency of extreme weather events continues to climb.

So are we spending an equal amount address the single greatest cause? Not even close.

The Government’s centerpiece climate policy is a $3.5 billion Climate Solutions Package stretched out over 15 years (with only $167 million available for emissions reductions in the next four years).

The government is spending more in on cleaning up after natural disasters in one year than it will spend on climate action over the next 15 years!

What about building Australia’s resilience to climate change? Well that garners even less funding that the Climate Solutions Package, $130.5 million over 5 years (just $26 million per year) to resilience funding. Another sign that the government would rather pick up the pieces than act preemptively to avoid the problem in the first place.

Worse still, the government is actually funding measures to speed up climate change, including $8.4 million funding to “accelerate” fracking in the Northern Territory that could potentially result in billions of tonnes of additional greenhouse gas emissions.

Ordinary Australians will increasingly bear the burden of the rapidly growing costs of climate change unless we reduce emissions and find more sustainable ways to fund the impacts that are already locked in. That is why The Australia Institute believes a levy on coal and gas exports would be a fair and reasonable way to raise funding from the industries making the largest contribution to the problem.

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Endnotes

[1] Millmow A (2007) ‘Rubbery figures all part of the game’, The Age, 10 August.

[2] Richardson D (2011) Surplus fetish: The political economy of the surplus, deficit and debt, The Australia Institute Policy Brief no 26, May.

[3] Morrison S (2019) ‘A Stronger Economy; It’s About People’,

[4] The Economist (2019) ‘Economists reconsider how much governments can borrow’, The Economist, 17 January.

[5] Abbott A (2013) ‘Tony Abbott’s campaign launch speech: full transcript’, Sydney Morning Herald, 25 August.

[6] Ireland J (2013) ‘Budget deficit blows out to $30b’, Sydney Morning Herald, 2 August.

[7] MYEFO p. 3.

[8] Coorey P (2019) ‘NDIS payment shortfall could boost budget bottom line’, Australian Financial Review, 28 March.

[9] Coorey P and Kehoe J (2019) ‘Ring-fence NDIS billions: Labor’, Australian Financial Review, 28 March.

[10] More specifically they have been excluded from the ‘underlying cash balance’ which is the measure everyone uses as the preferred budget metric.

[11] The Budget Papers give the expected company tax receipts over the forward estimates. We also now know the cost of cutting taxes for smaller companies (to the $50 million turnover limit). The latter appears in the Tax Benchmarks and Variations Statement as an appendix in the revenue statement. Those figures are taken forward beyond the forward estimates by assuming they increase in line with nominal GDP. With that set of figures and knowing the schedule of company tax cuts in the original plan we can derive our estimates of the amounts saved by rejecting the full company tax cuts.