Federal Budget 2018
The federal budget has been handed down for another year and the pollies have been out spruiking the benefits to the economy and telling us how we should all be rejoicing in the good news of personal income tax cuts.
There have been enough articles published in recent days on the ins and outs and the winners and losers so rather than repeat that here, I wanted to take the opportunity to give you my thoughts on how this budget looks to me.
First off, I think it’s reasonably fair to say that this looks like a voter friendly budget designed to keep most people onside and feeling good about the Government in the lead up to the next Federal election.
Everyone loves a tax cut but the reality is you won’t see a cent of it until you lodge your 2018/19 tax return. Why? Because it’s being delivered via a tax offset that is only calculated upon lodgement of your return. For most people the earliest this will happen is around August/September 2019.
The Treasurer believes these ‘tax cuts’ will provide a stimulus to the economy via increased retail spending but it seems to me that those who receive the maximum benefit of $530 are unlikely to spend it in a shopping spree. They are more likely to need it to cover things like increasing utility bills than a new pair of shoes. As one single mother here in Perth put it on the ABC news, “I’d be better off receiving a weekly coffee voucher”.
Most of the real tax ‘cuts’ (i.e. not offset based) won’t come into effect until 2024 and while the Government has announced that they want to enshrine these in law now, there’s nothing to stop future Governments from repealing them if they choose.
The other big issue I have with this budget is that the funding to pay for these cuts, scrapping of the Medicare Levy increase and the rest of the budget measures, is coming from optimistic revenue assumptions based on variable such as foreign exchange rates and commodity prices.
It doesn’t take much variation in these factors to put cause a significant downgrade in revenue estimates and it seems to me that the Government is betting on things falling their way rather than making informed policy decisions based on things that are within their control.
They have also announced that additional revenue will be raised by a crackdown on black economy activities by outlawing cash payments of $10,000 or more and the illegal tobacco trade. Both perfectly logical things to target but how effective can this really be in terms of raising revenue for the Government?
We need to remember that the people involved in these activities are engaging in illegal or criminal activity. They do this because they don’t respect the law so no matter what new measures are introduced they will simply look for different and better ways to get around them.
Don’t get me wrong, I think there are some good aspects to this budget, particularly for older Australians, WA infrastructure projects and increased funding for mental health services, but it just feels like they are tinkering around the edges this year.
I hope I’m wrong, but I can’t help but wonder if this is just a Band-Aid that will be ripped off to uncover a festering sore of an economy once the next federal election is out of the way.