Swan looks for savings to ensure surplus
CUTS to the baby bonus are among a suite of measures the Federal Government will implement as it strives to return the budget to surplus.
Treasurer Wayne Swan hopes the $16.4 billion worth of savings measures contained in the Mid-Year Economic and Fiscal Outlook will help him deliver a $1.1 billion surplus in 2012/13, $400 million less than the May Budget forecast. The net saving is actually $10.5 billion when new spending measures announced since May are factored in.
The cuts are an attempt to make up for a $22 billion write-down in tax receipts over the next four years, including $4 billion in the current financial year.
This shortfall was driven by a drop in company tax and resource rent taxes, Mr Swan said.
Falling commodity prices means the mining tax will bring in $9.1 billion over the next four years, $4.3 billion less than the May forecast.
The tax will raise $2 billion in 2012/13, down from the projected $3 billion.
Mr Swan said the impacts of the global financial crisis were still being felt in Europe and were hindering economic recovery in the United States.
This, he said, was having a flow-on effect in our region, making it harder to deliver a surplus.
"It's pretty obvious to all that once again this mid-year review has been put together amid storm clouds which are hanging over the global economy," Mr Swan said.
"Anybody who suggests our finances are immune from the global fallout is simply kidding themselves."
Mr Swan said the savings were designed to "have the least impact on the economy and on the vulnerable".
He defended cuts to the baby bonus, which was introduced by the Howard government in 2002, but admitted it was a "tough decision".
From July 1 next year people will continue to receive $5000 for their first child, but that figure will drop to $3000 for any subsequent children, saving the government $461 million over three years.
"We believe that these changes to the baby bonus will bring it more in to line with the actual costs of having children," he said.
"After the first child you've already bought the cot, the pram and the other items that you can use again.
"Now this is a tough decision, but it will help improve the sustainability of the family payment system over time."
The MYEFO document also contained changes to the Private Health Insurance rebate ($700 million in savings), the frequency of pay-as-you-go tax payments for companies and the tightening of fringe benefit tax arrangements ($445 million).
From April 1, 2014, the premium to which the PHI rebate is applied will move in line with inflation or the commercial premium increase, whichever is lower.
Mr Swan said the rebate, which costs about $5 billion per year, was growing at an unsustainable rate of 6.3%.
Under the PAYG changes, which will add $8.3 billion to the budget over four years, companies will be required to pay tax monthly rather than quarterly. The measure will apply to companies with a turnover of $1 billion from January 1, 2014 (350 companies); $100 million January 1, 2015 (2500 companies), and $20 million January 1, 2016 (10,500 companies).
"We think this is only fair, and only logical," Mr Swan said.
Mr Swan said delivering a surplus would provide the Reserve Bank with "maximum flexibility" to make further interest rate cuts.
The MYEFO projections for economic growth, unemployment and inflation were the same or close to the May forecasts.
"In those circumstances it is absolutely appropriate to stick with our surplus objective," he said.
"So we have continued to find savings in this mid-year update in a balanced way, in a responsible way. And we are focused, in doing that, on minimising the impact on the economy."
Opposition Leader Tony Abbott described the budget bottom line as a "cook-the-books surplus".
"Wayne Swan is hurting families' budgets so he can patch up the Government's budget," Mr Abbott said.
He described the proposed changes to PAYG as "fiscal fiddling in order to get the government out of a political jam".
"Now, but for the $5 billion bring-forward in company tax, but for the fact that they're going to get 14 months of company tax in 12 months, there wouldn't be a $2 billion surplus in the election year, there would be a $3 billion deficit in the election year," he said.
Mr Abbott said the Coalition was yet to decide whether it would vote against the key savings measures.
The Greens were highly critical of cuts to skills, education and research.
KEY FEATURES OF MYEFO
- Surplus downgraded to $1.1 billion in 2012/13 (from $1.5 billion).
- Surplus downgraded over the forward estimates from $7.5 billion to $6.4 billion in 2015-16
- $16.4 billion in savings measures over four years
- With new spending measures factored in - like the Dental Health Reform package ($1.8 billion over four years) and response to the Expert Panel on Asylum Seekers ($497 million over four years - the government will save $10.5 billion over the forward estimates.
- Baby bonus to be cut from July 1 - second and subsequent children to attract a baby bonus of $3000, down from $5000 - saving $461 million over three years.
- Changes to the way the Public Health Insurance Rebate is calculated, beginning in April 2014, saving $700 million over the next four years.
- Pay-As-You-Go to be changed from quarterly to monthly instalments, adding $8.3 billion to the underlying cash balance over the next four years.
- Higher Visa charges for skilled graduates, partners, working holiday makers and temporary overseas workers. Will raise an additional $52 million in 2012/13 and $520 million over four years.
- Tightening of salary sacrifice arrangements, saving $445 million over four years.
- Revenue from mining tax to be less than forecast in May budget - from $13.4 billion to $9.1 billion over the forward estimates.
- A $1.1 billion increase in "immigration related programs" in 2012/13, stemming from record boat arrivals, offshore processing of asylum seekers and increases to humanitarian aid.
- Unemployment to reach 5.5% by the end of 2012/13.