Tuesday’s was not a Budget that would have been brought in by John Howard, Peter Costello, or even Paul Keating. Or Bill Shorten, for that matter, who was on Twitter within minutes to condemn measures that he himself had advocated only a year ago. It reminds us a bit of those futurist reports that come out of think-tanks, or books like that by George Friedman, The Next 100 Years, or even Julia Gillard’s aspirational exercise Australia in the Asian Century.
There is quite a bit of never never about the Budget – for instance in ten years’ time corporation tax will – if all goes to plan – come down to a more competitive 25%, with small and medium size companies getting a 27.5% rate from July 1, and then this being extended annually to larger companies year by year.
That does not make it a bad Budget, but, as always, the devil is in the detail. There are a great many assumptions that cannot be proved – that nominal GDP will rise to 5.5% in a years time , that this higher growth and more jobs will help us to get the deficit down to $6 billion in four years time, that big multinationals won’t find other ways to avoid paying real taxes, and that big companies will not use the interesting youth employment scheme to get cheap labor. It is interesting that the only immediate jobs created will be at the 1000 at the ATO, and these will not be at the lower end of the scale, given their need to more closely monitor multinationals and their complex techniques of tax avoidance. There is a touch of a fairy tale in all this.
Even so, there is something for almost everyone in Scott Morrison’s first Budget, delivered with confidence and containing some surprises, despite the almost daily leaks that preceded its delivery. However there was not much to excite investors, who will have gained a better reward from the RBA’s 25 point drop in base interest rates earlier in the day. The modest cut was a bonus for Malcolm Turnbull, with three of the big four banks deciding immediately to pass it on to those with mortgages.
But the Budget was not good for those who have been – or hope to be – prolific savers for their own superannuation, especially those who manage their own self-managed super funds (SMSFs). Hitting the wealthy was always going to be inevitable once the Coalition had decided against following the New Zealand example and raising the GST, but reducing the cap on voluntary contributions to $25,000 a year wioth a lifetime cap of $500,000 on post tax earnings will not allow those on an average wage save enough to fund a pension. Better to invest in an expensive home; even better if you are married or have a partner living with you.
Restricting the amount that can be transferred to a pension account to $1.6 million will discourage those in SMSFs from seeking capital growth as active investors. Rather than put your money into super you might as well look at high value property, or negatively-geared new apartments. Only the ultra-cautious will be attracted by annuities that are going out of fashion in places like Britain and elsewhere because of their poor returns.
This aspect of the Budget looks like the first stage of the destruction of a superannuation system that is the envy of the world, and has served the country so well. It also breaks the unwritten rule that you don’t introduce Budget rules that are retrospective.
The real beneficiaries of May 3 are small businesses who can continue to write off up to $20,000 in everything from cars used for business to computers and iPhones, and will pay less tax, assuming, of course, they can make a profit. And home owners in prime areas of Sydney and Melbourne who are already seeing an 8% rise this year, and will be relieved that American-style property taxes were right off the agenda.