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What to expect from the 2019 federal budget

Economists have questioned the size of the budget's projected surplus.

Economists have questioned the size of the budget's projected surplus. Photo: AAP

Around $9 billion in tax cuts may be the carrot dangled in Tuesday’s budget by a government hoping to save itself from electoral wipeout in this year’s federal election.

With polls pointing to a Labor victory in the election – expected to be called by Prime Minister Scott Morrison only days after the budget for either May 11 or 18 – the government will hand down a budget of high political stakes for a desperate Morrison government.

Against a background of falling property values, flagging consumer spending and sluggish wage growth, the government is expected to pin much of its electoral hopes to tax cuts to win back disillusioned voters, and on infrastructure spending to stimulate economic growth.

The government’s mid-year economic and fiscal outlook (MYEFO) in December referred to $9.2 billion for “decisions taken but not yet announced” which many have assumed to be tax cuts.

Finance Minister Mathias Cormann has all but confirmed the budget will include extra personal income tax relief – it just remains to be seen whether this will be an entirely new range of cuts targeting low- and middle-income earners, or be a bring-forward of the cuts already legislated to begin in 2022. (That phase moves the top threshold of the 32.5 per cent tax bracket from $90,000 up to $120,000.)

ANZ senior economist Cherelle Murphy said when combined with the tax cuts announced in 2018, ANZ expected the tax relief unveiled on Tuesday to be an average of about $12 a week for workers in 2019-20 and less than $2 a week for 2020-21.

“ANZ Research believes modest immediate tax cuts are appropriate given the household tax-to-income ratio has risen to a 13-year high and the consumption outlook has weakened,” she wrote in a briefing paper.

“Modest tax cuts are arguably appropriate at the moment as household income tax is at a 13-year high of around 15 per cent of gross household income.”

But, she cautioned against ongoing tax reductions “based solely on unexpected commodity price revenue bonuses … [which] could erode future budgets unless future governments were willing to reverse those changes”.

NAB chief economist Alan Oster wrote that the “budget will … serve to entice voters with plenty of pre-election giveaways, contingent, of course, upon re-election”.

But he also noted that “while the turnaround in the budget is the good news, longer term the outlook is far less certain given the weakness in the economy”.

While there has been less detail than usual revealed before this year’s budget, the Coalition has confirmed it will hand down the first budget surplus in more than a decade, achieved through bumper revenue underpinned by healthy company tax receipts on the back of strong resources prices and some under-spending.

WHAT TO EXPECT

TAX

* Tax relief, either a bring-forward of the July 2022 income tax cuts, on top of those already starting on July 1, as part of an already-legislated $144 billion tax relief plan

* Possible improvements to tax offsets for low-income earners

* Instant asset write-offs for small businesses (with turnovers of less than $10 million) extended to June 2020 and boosted from $20,000 to $25,000

ECONOMY

* Better-than-expected surplus for 2019-20 (MYEFO: $4.1 billion in 2019-20)

* 3 per cent growth for 2019-20 (MYEFO forecast)

* Migration cap to be reduced to 160,000 from 190,000

* Expectation of a “stimulus” worth about $6 billion

ENERGY

* Energy bill rebates of $75 for singles and $125 for couples designed to help almost four million people pay energy bills

* $10 million business case for energy projects in north and central Queensland, alongside a shortlist of 12 further power projects that could be underwritten

* $2 billion for Emissions Reduction Fund, now called the Climate Solutions Fund

HEALTH

* $200 million to reduce out-of-pocket costs for scans such as ultrasounds and X-rays

* $62 million plan over four years for GP, emergency care and specialist services in rural areas

* $32.6 million will see breast cancer patients save up to $1500 per scan

* $496 million for Victorian cancer research, services and facilities

BANKS

* $600 million boost for financial regulators ASIC and APRA to deal with banking royal commission fallout

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