$7.1 Billion Federal Budget Surplus Announcement Brings Mixed Reactions

April 2, 2019 Updated: April 3, 2019

The Australian government announced the first federal budget surplus in more than a decade on April 2.

The centre-right Coalition government revealed on budget night the national expenditure has returned to profitability for the first time since the year 2007.

“The budget is back in the black with the Morrison government delivering the first budget surplus in more than a decade,” Australian Treasurer Josh Frydenberg said in a public statement. “This year will see a surplus of $7.1 billion (US$5 billion)—a $55.5 billion (US$39.2 billion) turnaround from the deficit we inherited six years ago.”

If the current economic performance continues, the government predicts further surpluses of $11 billion in the 2020-21 financial year (FY21), $17.8 billion in FY22, and $9.2 billion in FY23.

That’s “a total of $45 billion of surpluses over the next four years,” the treasurer said. “Surpluses will continue to build toward 1 percent of GDP within a decade.”

The surplus may be used by the government to go towards addressing the country’s net debt estimated at $361 billion or 18 percent of GDP in FY20, according to government figures.

Net debt is expected to decline to$326.1 billion or 14.4 percent of GDP by FY23, according to the government.

Commodities, Taxes Drive Surplus

The latest surplus was mainly driven by soaring commodity prices and higher corporate taxes, two years after the then Turnbull government withdrew a proposal to reduce the corporate tax rate by 5 percent to 25 percent.

Business transactions have largely offset declines in other areas of economic activity. Tax receipts are expected to fall $15 billion over four years due to weakening household consumption, property investment, and average wages.

“In the near term, however, this impact will be more than offset by an increase in company tax collections in 2018-19 and 2019-20, reflecting the recent observed strength in commodity prices,” the budget papers said.

Growth Through High Taxes

Reserve Bank of Australia Assistant Governor (Economic) Luci Ellis highlighted the federal government’s fiscal growth strategy of high taxation at the Housing Industry Association in Sydney on March 26.

“In the past year, taxes paid by households increased by around 8 per cent, more than double the rate of growth in gross household income of 3.5 per cent,” she said.

Mannkal Economic Education Foundation Research Analyst Cian Hussey wrote in The Spectator that Prime Minister Scott Morrison is leading the “biggest-spending and highest-taxing government Australia has ever seen.”

“A decade of fiscal mismanagement, from both major parties, has resulted in an enormous public debt that the Coalition is not serious about paying down. Tax receipts have boomed in recent years, but higher levels of spending rather than being used to reduce the debt are matching them just as quickly.”

Hussey also questioned why politicians have been consistently allowed pay rises even though net government debt has continued to increase over the last decade.

“Astonishingly in 2012 they were given two rises, one for 31.3 per cent and another for 3 percent just four months later,” Hussey said. “That politicians can receive pay rises while delivering such poor budgetary outcomes is absurd. To do their bit in assisting the budget, their pay should be frozen after delivering multiple budget deficits.”

Disability Funds Added

The budget might have also been boosted by an underspent National Disability Insurance Scheme (NDIS), according to Every Australian Counts, the National Disability and Carers Alliance’s (NDCA’s) grassroots campaign for the NDIS.

The campaign estimates between $1.6 billion and $3 billion of money that was originally allocated to the scheme went straight back to the government and boosted the latest budget’s bottom-line.

The revelation has outraged disability advocates who say the NDIS, administered by the federally funded National Disability Insurance Agency, has been underspent since the scheme’s inception in the year 2016.

“NDIS funds must be spent on the NDIS—not bolstering the budget bottom line,” NDCA chair Leah van Poppel said in a public statement. “Funds tagged for the NDIS should be spent on the NDIS. The underspend should be used to support people with disability and their families and fix up problems with the scheme–not returned to government coffers.”

The NDIS budget is often underspent due to long wait times to receive financial support from the scheme. Some disabled people are waiting two years for a wheelchair, according to NDCA.

“Most people in the NDIS are not spending all the funding allocated to them because they cannot work their way through the bureaucratic maze that is the NDIS to get the help they need. They are desperate for help and support–they just can’t get it,” van Poppel said. “The NDIS must run like a real insurance scheme where money not spent is put away for a rainy day or invested back into the scheme to get it working the way it should.”

Tax Cut Starts at $1 a Week

Frydenberg also announced tax cuts for about 10 million Australians, but only if the Liberal Coalition is re-elected at the general election in May.

People earning up to A$18,200 a year will pay no income tax, while those earning between that amount and up to A$37,000 will receive a A$55 tax cut in FY20 or about A$1 (71 US cents) a week.

Those earning between A$37,000 and A$48,000 will receive a A$190 tax cut, or about A$3.70 a week.

People making between A$48,000 and A$90,000 will have a A$550 tax cut or A$10.60 a week.

“Taxpayers will be able to access the offset after they lodge their end of year tax returns from 1 July 2019, which is in just 13 weeks’ time,” Frydenberg said.