The state of the books revealed in yesterday’s mid-year budget update was the best in over a decade.
The underlying cash balance in 2018-19 is forecast to improve to a $5.2 billion deficit, about twothirds lower than the budget estimate of $14.5bn in May. The 201819 deficit is now 0.3 per cent of GDP, one-tenth of the deficit of 3 per cent of GDP that we inherited from Labor in 2013-14.
The underlying cash balance for 2019-20 is now expected to reach a surplus of $4.1bn, almost doubling the surplus estimated for that year in the May budget. This will be the first budget surplus since the last year of the Howard government. It will increase to $12.5bn in 2020-21 and $19bn in 2021-22. The cumulative surpluses over the next four years will be $30.3bn, about double what was announced in the May budget.
With surpluses rising to more than 1 per cent of GDP from 2025-26, real inroads into paying back Labor’s debt are starting to be made. From a figure of 18.2 per cent of GDP in 2018-19, net debt is projected to fall to just 1.5 per cent of GDP by 2028-29. A stronger balance sheet is important to provide the government with flexibility to respond to unanticipated events during times of financial crises or economic shocks.
The combination of a growing economy, with a record number of people in work, is helping both sides of the ledger, increasing our revenues while also decreasing our expenditure.
Importantly, the rate of spending growth under the Coalition is averaging 1.9 per cent, the lowest level of any government in 50 years. This is even after taking into account new spending commitments to support drought-stricken communities, schools and hospitals, and a new and fairer model for distributing the GST.
In accordance with our disciplined budget management, new spending has been offset by reduced spending elsewhere. Having a strong economy, as Australia does, is not an end in itself. Rather, it’s a means to a better way of life that delivers more opportunity and choice and the essential services Australians need and deserve.
Since 2013-14, hospital funding has increased by more than 50 per cent and in this budget update, the government is delivering an extra $1.3bn for a new Community Health and Hospitals Program which will provide specialist services for cancer treatments, drug and alcohol dependency, rural health and new hospital infrastructure. In addition, $176 million has been provided to deliver 30 magnetic resonance imaging machines and $1.4bn for new listings on the Pharmaceutical Benefits Scheme to treat a range of conditions including cystic fibrosis, lung cancer and cholesterol disorders.
There is also an additional $287m to bring forward the release of 10,000 home care packages, more than $100m to support the Royal Commission into Aged Care Quality and Safety and $111m to support older Australians in residential care facilities in regional areas and those at risk of homelessness.
Schools also received a big boost. More than $4bn of additional funding will go to nongovernment schools, including to support schools in droughtaffected areas. This funding is part of a $300bn-plus commonwealth commitment to government and non-government schools over the next 10 years. This represents a 74 per cent increase in funding per student for government schools and a 55 per cent increase in funding per student for non-government schools over this period.
However, there are risks to our prosperity, some within and some beyond our control. Trade tensions between China and the US are real and we call on cool heads to prevail. Commodity prices remain volatile and, at home, tightening credit conditions and the softening in the housing market need to be managed.
This is why Labor poses such a risk with its $200bn of new taxes, which will stifle growth, cost jobs and damage confidence. Whatever the question, for Labor the answer is always higher taxes. Its plan for a new housing tax, by abolishing negative gearing as we know it and increasing capital gains tax, could not come at a worse time for the housing market. With credit rating agencies already warning a sharp fall in house prices could increase risks for economic growth and financial stability, Labor’s policy is irresponsible in the extreme.
Its promises of bigger surpluses also cannot be taken seriously. We all remember Wayne Swan’s four invisible surpluses, including his first promised surplus in 2012-13 of $1.5bn which he turned into an $18.8bn deficit. When it comes to economic matters, Labor always thinks it’s unlucky in government. But the reality is it couldn’t even turn the best terms of trade in more than a century into a surplus.
Bill Shorten and Chris Bowen can’t even agree as to when their signature housing tax policy will start, creating even more uncertainty for the sector and putting a cloud over their own costings. Not to mention musings from a Senate hostile to Labor’s housing and retirees tax, which may force it into desperate tax grabs elsewhere to fund spending commitments.
While the mid-year update demonstrates that the Coalition government has been able to remain within the tax speed limit of 23.9 per cent of GDP, Labor’s approach will undoubtedly increase the total tax burden well beyond that. This week at the Labor conference, it walked away from a tax speed limit, saying a tax cap does not fulfil any useful economic purpose.
In other words, there are no limits to Labor’s future tax grabs. This will hurt the economy, and every Australian.
Yesterday’s budget update shows the Australian economy is on the right track, giving us much to look forward to. However, these results are no accident, and the hard-earned gains would be easily and quickly squandered should Australia revert to Labor’s high tax, high spend approach.
The Coalition has spent five years repairing Labor’s mess and there is nothing to suggest that Labor has learned any lessons from its past mistakes. With the Coalition at the helm, the Australian economy is in good hands.
Josh Frydenberg is the federal Treasurer.