Well, he’s done it. Treasurer Wayne Swan has kept his political promise to deliver a surplus in 2012-13, with his fifth federal budget set to swing from a deficit of $44.4 billion this year to a tiny surplus of $1.5 billion in 2012-13.
But getting there will not be easy. To reach the surplus, Swan has been forced into one of the biggest programs of spending cuts and cost savings in recent history, with a stunning $32.6 billion cut out of the budget over the four-year forward estimates period.
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And the wealthy and larger businesses are firmly in the firing line, through a string of major cuts including:
- Scrapping the 1% cut in company tax due to start for small businesses from July 2012 and for larger businesses a year later. The Government says it remains committed to the cuts but blames the Opposition for blocking them. This measure alone will save $4.8 billion over the forward estimates.
- Deferring a plan to introduce standard tax deductions of up to $1,500 in a move that will save $2.1 billion over four years – and please accountants.
- Cracking down further on the living away from home allowance in order to save $1 billion, and tightening termination payment tax breaks to rein in “golden handshakes” for executives.
- Dumping tax breaks for green buildings at a saving of $405.2 million.
- Cutting tax concessions on the super contributions of those earning over $300,000, in a move that will save $946.5 million.
- Deferring plans to introduce a higher concessional contribution cap for those with less than $500,000 in super, generating savings of $1.5 billion.
Swan described the surplus – his first as Treasurer – as a “powerful endorsement of the strength” of the Australian economy and evidence the nation was “walking tall” in a troubled global environment.
“This budget is about discipline and restraint but also about priorities, ensuring precious funds are re-directed to the purposes and people that need them most.”
“Across the budget, by saving and redirecting $33.6 billion, we’re balancing the books.”
Little for business
Swan, who has repeatedly described his budget as a “fair go budget” has used his savage cuts to pay for a handful of modest initiatives, including cash handouts for low and middle income families and the already-announced loss carry-back tax break for businesses with less than $2 million in revenue.
The loss carry-back proposal, which has received qualified support from tax experts, is something of a free hit for Swan, as the budget papers confirmed today it will not cost the Government a cent in the 2012-13 year, as small businesses will not be able to access the much-needed relief until around 2014.
The loss carry-back proposal is expected to cost the Government $155.3 million in 2013-14, increasing to $251.2 million in 2014-15.
“We’ll encourage companies to invest and innovate by offsetting a current year tax loss of up to $1 million against tax paid in previous years; a refund of up to $300,000,” Swan said in his budget speech.
“This will support businesses when they need it — providing an injection of funds to invest in new ideas, equipment and markets.”
Other, smaller measures for business include:
- $30 million for a new Manufacturing Technology Innovation Centre.
- $55 million for new training initiatives, including $19.4 million in funding to help tradespeople establish their own business.
- Funding of $8.4 million for the office of the new Small Business Commissioner.
- Increased funding for ASIC and the Australian Taxation Office’s Project Wickenby.
Given the paltry size of these initiatives, and the fact that the benefits of the new loss carry-back will not start flowing to small business for the best part of 18 months, the focus for most business people will be on the Government’s decision not to proceed with its much-hyped company tax cuts.
Swan’s pointing the finger for the decision elsewhere.
“We wanted to do more for business with a company tax cut but the Opposition’s negative tactics have prevented that tax cut flowing.
“So my message tonight to businesses large and small is we are providing help now through the measures I have just described.”
“And we will keep working with you to seek consensus on proposals from the Business Tax Working Group later this year.”
Swan might be sheeting the blame home to the Opposition, but he will face a hard time defending this decision.
After all, the cuts have consistently been sold by Labor as the way business was to share in the benefits of the mining tax and business owners and leaders around the country will rightly be asking why they have been sacrificed for the surplus.
Cash for families
Business might be missing out on the mining tax proceeds, but households have been well looked after.
As foreshadowed prior to the budget, there is $1.8 billion to increase the rate of Family Tax Benefit Part A and a new Schoolkids Bonus that will replace the Education Tax Refund at a cost of $2 billion.
The Government will also spend $1.1 billion in a supplement of up to $210 a year for students, jobseekers and parents with young children and on income support.
Swan might have delivered his surplus on paper, but actually making it a reality remains, as HSCB economist Paul Bloxham said prior to the budget, a “Herculean task in such a short period”.
The budget forecasts GDP growth of 3.25% over the 2012-13 year, suggesting “above trend” growth in line with forecasts from the Reserve Bank and most economists.
Unemployment is tipped to remain well and truly under control – from 5.25% in 2011-12 to 5.5% in 2012-13 and 5% in 2013-14 – and inflation is also expected to cause few problems for the RBA, sitting at 2.5% for most of the four-year forward estimates period.
But as Bloxham argues, the uneven economy that business is currently battling does raise questions over whether tax receipts will be as strong as the Government hopes.
It’s worth noting, for example, that the deficit for 2011-12 has blown out from $20.3 billion in last year’s budget to $37 billion in last November’s Government budget review to $44 billion today.
In 12 months, the budget position for 2011-12 has changed for the worse some $24 billion. That underlines how difficult the task of actually delivering a $1.5 billion surplus in 2012-13 will be in Wayne Swan’s never-ending patchwork economy.