Queensland Economy Watch

I am delighted to publish this guest post on the upcoming federal budget from Nick Behrens, Director at Queensland Economic Advocacy Solutions. GT

2017-18 Federal Budget Wish List

by Nick Behrens

According to business groups the 2017-18 Federal Budget should be one that stays the course on fiscal repair, builds on tax reform, doubles down on red tape reduction and invests in the next generation of infrastructure. I wholeheartedly agree with these but the political landscape and competing priorities of framing a Federal Budget makes it difficult to see one let alone all four being delivered.

Treasurer Scott Morrison’s second Federal Budget to be delivered next Tuesday is a crucial one for the Coalition despite it coming less than one year after the last Federal Election. It will possibly determine the success or otherwise of this Government at the next election. No doubt it has been an exceptionally difficult budget to frame for the Coalition as there are unprecedented tensions between seemingly mutually exclusive outcomes. In short, it is difficult for the Coalition to stay the course that the business community wants, when arguably that course and what it has been doing have been a large contributor to the Government’s lacklustre support in recent polls.

Furthermore it is difficult for the Government to maintain business community excitement when the Senate on 31 March 2017 has already passed elements of the Coalition’s 10 Year Enterprise Tax Plan delivering tax relief for 3.2 million businesses with a turnover up to $50 million. SMEs were the biggest winner from the last two budgets and it is difficult to keep doing new things to regenerate the positive vibe that SMEs felt. As of 1 July this year, small businesses with turnovers of less than $10 million will now have a company tax rate of 27.5 per cent. No doubt this initiative will be re-mentioned but in reality it has already been delivered.

In respect to businesses with a turnover greater than $50 million, which were jettisoned from the Enterprise Tax Plan Bill 2016 as a result of an impasse in the Senate, it will be difficult for the Coalition to prosecute the case for tax cuts to these companies as a result of a perception that it is pandering to Corporate Australia (a segment of the community that does not illicit much sympathy from the average voter at present). The net advantages of eroding the tax base in the short term to deliver an internationally competitive company tax rate of 25 per cent does not seem to fly with voters. This is a shame as modelling suggests a cut in the corporate tax rate to 25 per cent would generate a permanent increase in the level of GDP of just over 1 per cent and we are only part way to achieving this commendable outcome.

Frustratingly for the Coalition, despite the 10 Year Enterprise Tax Plan and spending cuts, last year’s Federal Budget was ultimately viewed by the business community as a missed opportunity for holistic reform to the way we tax and spend. At the same time, it upset many in the broader community. Fixing the embedded budget deficit should be the highest priority but the Coalition has been unable to bring the broader public on the journey of this important challenge.

Support for budget repair needs to be bipartisan yet the ‘politics of populism’ appears to be trumping the need to live within our means. Whilst both sides agree something needs to be done, it is how we fix the problem that is proving elusive. Any fix is extremely difficult with over 50 per cent of the budget comprised of expenditure relating to social security, welfare and delivery of health services, no go areas for much of the community. In short, the 2017-18 Federal Budget needs to take action to reduce the deficit otherwise we burden future generations with either higher taxes or more severe austerity measures. Whether the Coalition puts this principle ahead of its own political fortunes will be fascinating to observe.

Finally it will be interesting to see whether the stoush between Queensland and the Coalition dissipates as a result of the Budget next week. In short, Queensland has arguably been short changed in infrastructure funding in recent years in comparison with other States. However, it is worth adding that this is largely as a result of our State’s steadfast refusal to recycle assets in order to access additional Commonwealth funding.  Recent comments particularly from the Prime Minister indicate that the Coalition’s hard line approach may be softening.

In closing I have provided below key recommendations that I believe should be included in the 2017-18 Federal Budget.

My Federal Budget Wish List

1. Real spending growth should not exceed 2 per cent each year until a budget surplus is achieved and spending should be capped at less than 25 per cent of GDP. The Senate should as a matter of priority pass the Government’s omnibus bill.
2. Extend the instant asset write-off scheme for small businesses with turnover up to $10 million for two years.
3. Establish and prioritise a regulatory reform agenda, strengthen the Australian Government’s Regulator Performance Framework and implement the 2015 Competition Policy Review to streamline planning approval processes and increase mutual recognition of occupational licensing.
4. Provide ‘asset recycling’ incentives to state and territory governments to privatise infrastructure assets and reinvest the proceeds into new infrastructure.
5. Provide funding for several of the following projects listed in Infrastructure Australia’s February 2017 Priority List:

• Cross River Rail – A rail solution to support an integrated passenger transport network in South-East Queensland (Brisbane CBD public transport capacity);
• Ipswich Motorway Rocklea–Darra Stage 1c (Southern Brisbane–Ipswich road network capacity);
• M1 Pacific Motorway – Gateway Motorway merge upgrade (Road network capacity Brisbane–Gold Coast);
• Bruce Highway Upgrade – Cooroy to Curra Section C (Road network capacity Wide Bay–Burnett region);
• Bruce Highway Upgrade – Mackay Ring Road Stage 1 (Road network capacity Mackay region);
• M1 Pacific Motorway upgrade – Mudgeeraba to Varsity Lakes (M1 Pacific Motorway capacity);
• Inland Rail (Melbourne to Brisbane via inland NSW) (Freight connectivity Melbourne-Brisbane);
• Ipswich Motorway Rocklea–Darra (remaining sections) (Southern Brisbane–Ipswich road network capacity); and
• Port of Brisbane dedicated freight rail connection (Freight rail access to Port of Brisbane).

Nick Behrens is Director at Queensland Economic Advocacy Solutions.