BUDGET SUMMARY - 2015 Budget

Introduction

The 2015 Budget, Joe Hockey’s second and last, was widely seen as a retreat from the austerity of his previous 2014 budget, and an abandonment of the rhetoric of returning the budget to surplus in the near future. In comparison to his first budget, which had been criticised for the disproportionate impact on lower income households, 2015 saw greater emphasis on so-called “growth” measures to take up the anticipated continued decline in contribution to the economy from the mining sector and, possibly, generate higher tax revenues from a stronger economy. It included some key concessions to small business based on this thinking, but did not take any strong measures to directly improve the revenue side of the ledger.

By not taking the opportunity to initiate wider reforms of tax and income tax scales, and to not directly confront emerging spending pressures such as the aging of the population and defence equipment replacement needs, as well as those let loose by the Gillard government in regard to education and health, the legacy of the last Hockey-Abbott budget of 2015 will be continuing constraints on and headaches for successor governments over many years.

Budget Aggregates

On an underlying cash basis, Payments (outlays) under the Budget were forecast to be 25.9% of GDP for 2015-16, maintaining the historically high level of 2014-15, with the anticipation that these would decline by 0.6 percentage points over the forward estimates. It was acknowledged in the Budget papers that this projection, and the anticipated trend in spending in the years beyond, left a job of work to be done on continued reductions in this key budget measure of fiscal sustainability.

On the same basis, Receipts (revenue) was forecast to be just 24% of GDP (up from 23.5% from 2014-15) leaving a significant gap in the much-paraded election time ambition of the Government to return to budget surplus.

Payments were to increase by some $15b with receipts improving by $21b.

Key Messages

The notions strongest throughout the Budget papers and speech were about creating incentives for greater work efforts. The Treasurer encouraged small businesses to “get out and give it a go” as a new focus for economic growth, along with families supported by new childcare measures who would find increasing hours of work more beneficial.

Eventual return to budget surplus was a secondary message, with the forecast reduction in the deficit by a solid $10 billion offered as a down payment on better economic management than under the previous Labor governments.

Even the significant increase in transport infrastructure spending was marshalled to the cause of improving growth and productivity, albeit that projects were to be focused on road building and public transport specifically precluded.

Fairness (which had been seen as lacking by commentators in the first Hockey budget) was to be specifically addressed through administrative measures to crack down on tax and welfare fraud, but not to extend to direct program responses. Tightening the asset test on aged pension to reduce the number of those with higher asset holdings was not paraded as a fairness measure as such, but did have that effect as well as saving $4b.

Signature Measures

Key measures focused on stimulating small business through advanced asset write down provisions and a cut of 1.5% to the company tax rate applying to small enterprises ($5.5b).

A family package provided increases in childcare support across a wide range of family incomes ($3.5b).

Overall movements of expenditure areas of the 2015 budget show the priority accorded them in the government’s agenda

Transport and communication

32%

$2.1b

Agriculture, forestry and fishing

12%

$331m

Housing and community amenities 

8%

$390m

Defence

7%

$1.7b

Public order and safety

7%

$304m

Social security and welfare

3%

$4.9b

Health

3%

$2.3b

Education

2%

$651m

Recreation and culture

0%

$11m

 

 

 

Mining, manufacturing and construction

-2%

-$76m

Fuel and energy

-4%

-$280m

Other economic affairs 

-8%

-$888m

General public services

-12%

-$3.0b

 

 

 

Other purposes 

7%

$5.7b


Accuracy of Assumptions

The key assumptions underlying the budget are crucial in determining the actual budget outcome, and can only be tested after the event when the next budget incorporates revised levels. For some years now, estimates of expenditure have tended to be understated in Australian budgets, and revenue over-estimated, resulting in significant upward revisions to the budget deficits over recent years.

The budget included the following assumptions in the modelling of forecast outcomes:

  • Fiscal balance was forecast to improve by $10 billion from $44b in 2014 -15 to $33b in 2015-16
  • Growth was forecast at 2.75%, (1/2 of a percentage point below trend)
  • Unemployment rate 6.5%

Portfolio Expenditure 2015




of total federal budget

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