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Does the 2013 Federal Budget help the economy?

Federal Treasurer Wayne Swan addresses a CEDA event in Brisbane, Friday, May 17, 2013. Mr Swan was discussing Tuesday's federal budget. (AAP Image/Dan Peled)

Federal Treasurer Wayne Swan addresses a CEDA event in Brisbane, Friday, May 17, 2013. Mr Swan was discussing Tuesday’s federal budget. (AAP Image/Dan Peled)

As presumed by most political commentators, the 2013 Federal Budget is likely to be Treasurer Wayne Swan’s sixth and last. It is also a political budget, more-so than an economic one. 

While Prime Minister Gillard is looking to leave some sort of legacy, in particular through the National Disability Scheme (NDIS), the real questions raised by the budget are: how will the Coalition respond and do the numbers really mean anything?

When you sift through the spin and the positive projections there is much to be revealed.

The $19 billion deficit cannot be sugar coated. Labor has been accused of spending like a ‘drunk sailor’ and those accusations stick when you consider the previous Howard government left a surplus of $21 billion. What makes the waste even more galling is Labor’s repeated promises of surplus delivery.

According to the Institute of Public Affairs, spending levels under the Swan government have increased by $57 billion over five years; from $325 billion to $381 billion. Mr Swan blamed this increase on the lack of revenue and highlighted the fact that the unemployment rate was a mere 5.5%.

The problem with employment

The unemployment figures are quite good. However, according to labour markets expert Dr Massimiliano Tani from Macquarie University, the 5.5% does not include people working part-time and struggling to work more hours. It also does not include those who are casually employed thus lacking stability in income.

In an interview with 21st Century News, Dr Tani went on to explain that despite the statistics revealed by Mr Swan, it was not a clear representation of the unemployment situation in Australia. The problem lies not just with being employed, but also with the underemployed.

For instance, there are a large number of graduates qualified for certain professions; however, they end up in jobs for which they are over-qualified. There are also a large number of immigrants who despite having degrees in IT, accounting and finance end up working at the supermarket or driving taxis.

Hence, even though the unemployment rate is commendable, this budget did not delve into finding solutions for underemployment.

The black holes

In order to fill the budget black holes there was an expected tax increase on big businesses and superannuation. Mr Swan unveiled a $4 billion tax reform package aimed at stamping out loopholes in corporate tax exploited by multinational enterprises and large domestic companies.

Large enterprises will now have to pay PAYG tax on a monthly rather than quarterly basis.

According to Robert Gottliebsen in the Business Spectator:

“The drainage starts next January for those with turnover over $1 billion but by January 2016 large entities will be defined as those with a turnover of $20 million or more. This working capital drainage (my words) raises $1.4 billion over the forward estimates.

“But then come the ominous new words in the budget documents, which say the working capital drainage will cover “trusts, superannuation funds, sole traders and large investors. The next step is clearly to extend this to smaller enterprises with turnover under $20 million and also drain them of their cash.”

The current budget is likely to hinder the progress of small businesses, which some argue are the backbone of the economy.

IPA statistics reveal that there are 2.7 million small businesses in Australia. These represent 96% of all businesses, employing 47% of private sector employment and and contributing 35% GDP.

“Instead of a reduction in the regulatory burden and provision of long sought after tax breaks to support the vital small business sector, we find ourselves with yet another Budget that will do nothing to promote the small business sector,” said IPA chief executive officer, Andrew Conway.

“While we welcome measures such as the Industry Innovation Precincts, Enterprise Solutions Program and changes to the venture capital regime, there is nothing substantial to create sustainable, long term improvements in productivity,” Andrew said.

Additionally the budget will include the introduction of $109.1 million into the Australian Tax Office for targeted compliance activities in the corporate sector and $69.7 million to investigate trust structures used by the wealthy to avoid tax.

This strategy brings about more red tape and compliance for companies and also creates jobs at ATO. However, the downside to this measure is an increase in bureaucracy, which in the long-term is not beneficial to the productivity of a business and is an extra expense for businesses to manage compliance issues.

Even though it does create jobs in certain administrative and accounting professions, the risk is that these jobs are viable only as long as this legislation is in place and as an added expenditure to companies – it may cost the employment of other productive professionals.

Trust issues

Lastly, one of the major issues associated with this budget is trust. The current government has undoubtedly lost the trust of its people after proclaiming unattainable promises and falling short on delivering them.

Projections of revenue and decisions made to attain it have been a disaster. The poor execution of the mining tax that generated only $126 million dollars worth of revenue is a prime example.

Ms Gillard and Mr Swan have repeatedly said that they could not achieve a surplus due to a lack of revenue. However, statistics from the IPA reveal that since Swan became Treasurer, general government revenues have risen from $299 billion to $360 billion; taxes have risen by $60 billion over five years due, in part, to a raft of tax increases such as rising alcohol, fuel and tobacco excises, closure of income tax relief, and new carbon, mining and superannuation taxes.

The high Australian dollar has without a doubt adversely affected the manufacturing industry, nevertheless, according to Dr Tani, what the government didn’t do is take advantage of the high Australian dollar.

Dr Tani explains that the high dollar could have been utilised in purchasing foreign infrastructure in order to help the productivity and investment of businesses in Australia. However, the government’s spending patterns were ineffective and wasteful thus explaining the shortage in revenue.

Overall, the economy at the moment is not all doom and gloom. Yes, there has been a fall in revenue and a resultant deficit including an increase in debt. Yet the figures for Australia are a lot better than many other countries.

Nevertheless, it is worth noting that the economy has taken a negative turn since the current government came into power. Five years of mistakes may not necessarily dupe the economy of a country instantly. However, continuing the trend may result in a much-feared basket-case economy. Unfortunately, this budget does nothing to prevent that.

 

ALSO READ:

Budget does not help Labor in polls

Budget was wasted opportunity says John Howard

Budget needs emergency rescue: Hockey

 

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