Peter Switzer is one of Australia's leading business and financial commentators and founder of the Switzer Super Report, a newsletter and website for self-managed super funds.
This first Budget of Joe Hockey’s didn’t hurt as much as expected, unless you turn out to be in the group singled out for a bit of attention. A lot of Aussies won’t be badly affected by the Budget and that’s good news for the economy, which has been looking up lately.
I have to say the most interesting aspect of the Treasurer’s speech was Julie Bishop’s new hairdo, but I digress.
If you’re unlucky enough to be on $200,000 and, therefore, over $180,000 a year, your 2 per cent debt levy will cost you around $7.70 a week! I couldn’t even write “ouch” on that. The PM, who is on more, will be slugged $6000 a year but his tax accountant might advise he buys an investment property to reduce the impact of the levy!
What about the deficit?
In case you care about the big picture, the deficit is tipped to go from $29.8 billion over 2014-15, then $17.1 billion in 2015-16 and $10.6 billion by 2016-17. This is based on all the Government’s decisions in this Budget and economic growth numbers, which I think are suss.
Full coverage: The biggest winners and losers of Budget
Treasury, whose forecasting has been as good as experts tipping the Melbourne Cup winner, says growth will be 2.5% next year. I say it will be at least 3%. The next financial year is at 3% and then 3.5% but these numbers understate growth, I reckon, so the deficit tumbles quicker on my calculation and Joe will look like a genius ahead of the election.
Do you think there could have been method in his miscalculation madness?
The winners and losers
That’s enough on the big picture. Let’s look at winners and losers, rich people aside:
• Older Australians will retire at 70 but that doesn’t come in until 2035, so it really affects 40-somethings.
• Untaxed super will be in the income test for a health card; and
• pensions will be indexed to inflation rather than wages, which will save the Government money and so will slightly hit pensioners.
• Students were targeted, which will teach them for being left-wing radicals! Graduates will have to repay HELP debt once their salary hits $50,638 plus.
• The Newstart allowance will be stopped for six months for new jobseekers under 30, which is tough. After six months, there will be a 25 hours a week obligation for six months of income support.
• The paid parental leave will have a cap of $100,000 a year, which is family friendly.
• The $7 co-payment becomes free for kids under 16 after 10 visits.
• Family Tax Benefit B’s rules will be tightened but there will be $750 a year for kids 6-12 years for low-income single parents.
What about business?
Business did OK, with the 1.5% cut in company tax. However the cut doesn’t come in until 1 July 2015 and anyway, most small businesses aren’t companies, though few earn more than $180,000, so many small business owners did OK out of Joe’s effort.
If they hire older unemployed workers, who are 50 years of age or more, they’ll be paid a bounty of $10,000. There will also be subsidies for bosses who hire someone after they have been on the Work for the Dole scheme.
Back to the big picture
The $50 billion for infrastructure — equivalent to eight Snowy River projects — is a great fillip to economic growth, jobs and productivity but the tax slug on fuel will hit low-income car users harder than those on higher incomes.
What I find interesting about this Budget is that there are a lot of little cuts that add up and Joe has hit higher income Australians, who are big savers, and pretty well left middle Australia not too damaged — income-wise — and these people are great spenders.
Will the recovery be hurt?
A lot of the cutbacks come in over time so I don't think the current economic recovery will be hurt by this Budget. Recall we have created 106,000 jobs since January so there’s a decent economic recovery building. I can’t see this so-called tough Budget really derailing the recovery.
What about interest rates?
By the way, if the impact of this Budget is later to be seen as tougher than it first appears, the Reserve Bank will, in all likelihood, hold interest rates at these low levels for longer. So the Aussie borrower and spender will keep on doing the stuff to keep the economy growing and this will bring down the deficit and eventually the debt.
Black Adder, Black Adder…
I call this a Black Adder budget as it’s based on a cunning plan to look tough but not being all that tough for the average Aussie, who just might vote for the Coalition.
What about the debt levy?
What about the rich who’ve been hit with a debt levy? One mate, who’s well off, recently sent me an email complaining about the levy saying: “I didn’t vote for higher taxes but who do I vote for — Clive Palmer?”
Joe and Tony certainly have produced a cunning plan.