2013 Federal Budget – Facts Without the Political Fiction
On Tuesday night Treasurer Wayne Swan delivered what many expect to be the current Labor government’s last federal budget. Amongst the mass of political commentary masquerading as budget analysis it can be easy to get distracted from what the budget actually means. So here we present the unbiased facts, and some of the best info-graphics from Australian media, so you can form your own view on the 2013-14 Federal budget and how it may impact you and your business over the coming years.
Federal Government Revenue & Spending
The below graphics show the main categories of government revenue and government expenditure in 2013-14. These represent where all government revenue is raised from, and how it is spent.
What is clear, is that the Federal Government is budgeting to spend more than it will collect. The 2011-12 deficit of $43.4 billion is expected to be halved to $19.4 billion this financial year. The government then predicts an $18 billion deficit in 2013-14, before reaching a “balance” of $800 million in 2015-16 and a surplus of $6.6 billion in 2016-17.
Winners and Losers
As in any budgetary process, decisions are made on how to allocate scarce resources (tax revenue) across the many competing causes. In the 2013-2014 budget, the Federal Government has made a number of new decisions, which result in some winners (receiving more) and losers (receiving less).
The key winners in this budget are:
- • School kids: Gonski education reforms funded for six years, including $2.9 billion in the budget over four years;
- • People with disabilities: disability insurance funded for seven years with $1.9 billion in the budget;
- • Commuters: $24 billion road and rail infrastructure program to begin;
- • Students and employees: new education, skills and research funding of $1.2 billion;
- • Disadvantaged: new welfare and health spending of $1.8 billion;
- • Retirees: scheme to help elderly people move from family homes without suffering a pension loss;
- • Farmers: $100 million farm household allowance and additional financial relief to offset the impact of the drought;
- • Forests: $330 million to support the Tasmanian forest agreement;
- • ATO: Tax Office gets $150 million in new funding; and
- • Savers: rise in annual contributions caps for people over 50.
The key losers in this budget are:
- • Business: tax hit for companies to raise $4.2 billion over four years;
- • Multinationals: profit shifting curtailed, debt deductions restrained;
- • Miners: exploration deductions curbed;
- • Investors: double-dipping on franking credits denied;
- • Banks: offshore vehicles slugged to raise $320 million;
- • Super funds and trusts: must pay monthly tax bills, adding $1.4 billion;
- • Importers: new import processing charge;
- • Innovators: R&D savings to raise $3.1 billion;
- • Parents: baby bonus abolished, saving $1 billion over four years;
- • Middle to higher income earners: health spending and tax savings to raise $1.7 billion and Medicare levy increase to fund disability spending;
- • Renewables: cuts to carbon programs including renewable energy and coal projects worth $3.4 billion; and
- • Foreign aid: millennium development goals deferred another year.
Economic Growth Forecasts
The Budget is based on Treasury modeling of GDP, growth, currency and other economic indicators. Treasury expects growth to slow to 2.75% next year before returning to trend of 3% the year after, under the impact of the high dollar and weaker commodity prices. Importantly, Treasury warns that the switch from a mining investment boom to other sources is “unlikely to be seamless”.
The Budget says “Conditions are expected to remain uneven across the economy with the transition under way occurring from the sustained high Australian dollar and continued household caution around debt accumulation.”
This is also expected to drive the unemployment rate closer to 6% as mining jobs shrink whilst the rest of the economy struggles. The jobless rate is expected to average 5.75% next year, again 0.25% higher than expected six months ago.
Despite concerns that the mining investment boom is set to collapse, Treasury still expects business investment, which is already at record high levels equal to 15% of GDP, to grow again next year by 5% as mining reaches a peak and other businesses are expected to also increase their spending. But from 2015-17 business investment is expected to fall significantly as a share of GDP, based on Treasury analysis of company reports and liaison with business. Treasury gives no precise estimate but implies contraction of business investment by more than 10% over those two years.
The 2013-2014 Budget has committed the Federal Government to a range of large infrastructure projects, and these are illustrated in the graphic below.
(Source: The Daily Telegraph)
The Federal Government’s main revenue stream is of course tax receipts. The below info-graphic from Deloitte’s budget review summarises the main changes in the tax system announced in the 2013-2014 budget.
(Source: Deloitte Federal Budget Brief)
Whilst the Treasurer has announced all of these measures, it is worth noting that none will actually come into effect until bills containing them pass through both houses of parliament. The current sittings end on 27 June 2013, followed by a hiatus until the Federal election on 14 September 2013, making it likely that many announcements by the current Labor government may in fact never be made law if the Coalition win the next election.
This leaves a great deal of uncertainty for Australian businesses, families and individuals. Perhaps the key takeaway from this budget is that the Australian economy is heading into more difficult and uncertain times, and Australians should consider Treasury forecasts when casting their own budgets, something they have much more control over.