The 2017 Federal Budget is shaping up to be one of the toughest budgets to second guess in decades. The Coalition Government came to power under Tony Abbott late in 2013 promising to ‘get the budget back under control’ and to ‘start reducing debt’. The Coalition promised to achieve these outcomes with a low taxation agenda coupled with a desire to stop “wasteful spending”. However, the Turnbull government has been unable to control the nation’s spiralling welfare bill partly because Labor and an obstructionist Senate are refusing to back Government welfare cuts, partly because of a commitment to the new mantra of “jobs and growth” and partly because of the need to keep its electorate on side.

In an exclusive interview with The Courier-Mail on 14 February, Treasurer Scott Morrison said the impasse was leaving tough choices in the lead-up to May’s Budget implying that the Government could be forced to raise taxes to pay for welfare recipients because of unsustainable debt levels but, just six weeks later, tax cuts have been announced for a projected 3.1 million Australians and a tax rate of 27.5 per cent for businesses with a turnover of up to $50 million. The second highest income tax rate of 37 per cent will now kick in at $87,000 instead of $80,000. The measure, intended to prevent average wage earners from moving into the second highest tax bracket, will benefit anyone earning more than $80,000.

Over the next month government and opposition will be engaged in intensive experimentation with tax and transfer models to see how the government can achieve a balancing act between staving off recession and renewal and how the opposition can craft a plausible alternative economic project.

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