Finance Finance News Tax cuts and surpluses: Treasurer unveils a rosy economic outlook

Tax cuts and surpluses: Treasurer unveils a rosy economic outlook

myefo surplus budget
Workers are set to enjoy a tax cut sweetener ahead of next year's federal election. Photo: Getty
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Tax cuts worth up to $9 billion for workers, the first budget surplus since the global financial crisis and a crackdown on the dead claiming welfare are the big promises in the mid-year budget update. 

The update also includes a $1 billion-plus war chest for new spending in measures not yet announced. 

Treasurer Josh Frydenberg has announced the slimmest budget deficit in a decade – falling to $5.2 billion this financial year – in Monday’s mid-year fiscal outlook. 

The forecast budget surplus for 2019-20 is also more generous, doubling to $4.1 billion. 

Unemployment is forecast to stay at 5 per cent but there’s an optimistic forecast of 3.5 per cent in wage growth. 

The figures give the Morrison government headroom to deliver big tax cuts to help it turn around persistent predictions it is set to be turfed out at next year’s election.

“It is no secret we are committed to lower taxes as part of our plan to strengthen the economy, create more jobs and ensure that Australians have the best possible opportunity to get ahead,’’ Finance Minister Mathias Cormann said. 

“As the Treasurer said, this is only an update. Between now and the election, there’ll be another budget, a pre-election economic and fiscal outlook and, of course, decisions will be announced in the usual way.”

The budget papers also provide a clue that some big-spending election promises lie ahead. There are $8.9 billion in revenue measures booked but not announced (the likely shape of pre-election tax cut promises) and $1.4 billion in yet-to-be-announced new spending. 

The combined tally of tax cuts and unannounced spending is more than $10 billion. 

Tax cuts forecast but not announced include a drop in the tax take of $2.5 billion in 2020, $3.8 billion in 2021 and $3 billion in 2022. 

“This will be the first budget surplus since the last year of the Howard government. The surplus will increase to $12.5 billion in 2021 and $19 billion from 2021/22,’’ Mr Frydenberg said. 

“The cumulative surpluses over the next four years will be $30.3 billion – around double what was announced in the May budget.”

myefo budget surplus
Josh Frydenberg and Mathias Cormann at Monday’s MYEFO announcement. Photo: AAP

Mr Frydenberg said the figures were due to years of effort by successive Coalition treasurers. 

“Today’s results are no accident. What we have done is we’ve actually restrained our spending and targeted our spending, but we’ve also stayed true to our tax to GDP cap of 23.9 per cent,’’ he said. 

“What the Labor Party is promising the Australian people is higher taxes and higher spending. Now, when you lift those restraints, you will end up with budget deficits and irresponsible fiscal management. 

The MYEFO figures stick to the Coalition’s budget rules of ensuring new spending is offset elsewhere in the budget.

One new measure is a crackdown on the dead claiming welfare overseas. Seniors will be forced to provide “proof of life” in a compliance measure designed to deliver more than $150 million. 

“On the revenue side, there are obviously a number of important rules that work together and one key rule is the 23.9 per cent tax as a share of GDP cap, which we believe is important to keep the economy strong,’’ Senator Cormann said. 

Government net debt, which peaked last financial year as a share of GDP, is now on track to reach just 1.5 per cent as a share of GDP over the medium term.

“In relation to progressing budget repair measures through the Senate, we can also report that since the last election, the government has now secured the passage through the Parliament of over $56 billion in budget repair measures.”

Senator Cormann also warned the media not to write off the government. 

“The last time I’ve seen the Labor Party this cocky about the upcoming election, and the last time I remember senior representatives of the press gallery declaring the election result five months out, was 2001 when Kim Beazley, as opposition leader, thought he was going to sail into The Lodge – and everybody knows how that turned out,’’ he said. 

“Mr Beazley was much more electable than Mr Shorten.”