by Darryl Conroy, Head of Treasury Research
The 2016 Federal Budget presents a coherent storyline that is likely to maintain our AAA credit rating, in the short term, but ratings agencies are wavering. An admirable first effort, considering it comes a mere two months before an expected general election. However, in the absence of any tough budgetary measures there, the path back to surplus remains largely dependent on economic conditions strengthening in the years ahead. Of course, the political reality is that austerity measures are particularly challenging in election years.
|Cash Balance ($)||-37.1 bn||-26.1 bn||-15.4 bn||-6.0 bn|
|% of GDP||-2.2||-1.4||-0.8||-0.3|
|Net debt (%)||18.9||19.2||18.8||17.8|
Budget Aggregates (Table 1)
On a positive note, the “Ten Year Enterprise Tax Plan” is much-needed for the business sector to structure their own Budgets and business plans. Having said this, at this stage the announcement is just a plan, and in the absense of bipartisan support, the company tax cuts in later years would remain hostage to a change of government.
Business - Company Tax Cuts
- Tax cuts for small and medium sized businesses (from 28.5% to 27.5%) starting 1 July 2016;
- Medium sized businesses (up to $10m) to receive the instant asset write-off;
- All companies to pay a lower tax rate of 25% by 1 July 2026;
- Increase in the tax discount for unincorporated entities from 5% to 8%, ultimatley rising to 16%;
- Some incentives for start-ups and to encourage innovation, including reforms to employee share schemes and crowd-sourced equity funding to help make it easier for new businesses to raise capital.
The $840m toward young jobseekers package is a bright spot, and middle-income earners see a higher tax threshold from $80k to $87k.
Superannuation - Winners and Losers
In a bid to address Budget fairness, high income earners face an increase to the contributions tax, by lowering the threshold to $250k (from $300k);
- Lower concessional cap to $25k per year;
- A $500k lifetime cap for non-concessional contributions (starting Budget night 3 May);
- Low income earners to benefit from the tax offset up to $37k.
Infrastructure - Something Old, Something New
The $50b plan for road and rail infrastructure remains unchanged for strategic links. An inland rail project between Brisbane and Melbourne was announced without commitment to its construction.
Rural and Regional
To help farmers with trade capabilities, $13.8m will be added to the Farm Co-op and Collaboration Pilot Programme. $7.1m will be allocated for rural counsellors in drought affected regions.
Multinationals and Smokers
Companies and people in these categories bear the brunt of funding the additional spending intiatives.
More to come
The Budget includes almost $4b for policy decisions (both spends and saves) which have been made by the Government but not yet been announced. We will see further policy announcements from all parties during the election campaign.
This Budget is likely to be criticised for not being a silver bullet solution for all the economy’s ills, but it does what a Budget is supposed to do. That is, lay a platform of certainty for businesses to get on with investing and employing.
Suncorp-Metway Ltd ABN 66 010 831 722 (“Suncorp Bank”). The information contained in this document is subject to change. Suncorp Bank does not represent, guarantee or warrant the accuracy or correctness of the information contained in this document or shall it be liable for any claim whatsoever arising from any person relying, or purporting to rely, either wholly or partially upon the information. The information provides a general summary and has been prepared without taking into account any individual particular objectives, financial situation or needs. No action should be taken in reliance upon the information in this document without consideration of the appropriateness of the information to any individual particular objectives, financial situation and needs and without first seeking expert financial advice.