By Nicki Hutley | 4 May 2016

The 2016-17 Budget has an air of familiarity about it.

A deficit remains throughout the four years of the Budget forecast period – the so-called forward estimates.

While the deficit is expected to fall substantially over the next four years – as revenues rise and expenditure decreases – this expectation is built on some optimistic economic forecasts, a practice that appears to have become embedded in Budgets since the GFC.

The focus of this Budget is very much economic policy. The Government says this Budget contains a strong plan for growth and jobs. The centrepiece of this plan is further cuts to the company tax rate for small businesses; these will be extended to medium and then all businesses over ten years. This measure is estimated to add around 1% to economic growth over the ‘longer term’ – there is no estimate on the impact on employment.

Any initiative that promotes growth is an important addition, but this is hardly a game changer for growth; nor does it address structural imbalances and skill shortages in the economy.  And it comes with the hefty price tag of $5.3 billion in just the first four years; the full cost of roll out will be orders of magnitude higher.

Aside from the change to company tax, there are a number of measures that represent good policy: there’s some additional investment in infrastructure, a tightening of superannuation concessions, and an increase in tobacco tax. The crack down on corporate tax evasion is estimated to net almost $4 billion.

 

Perhaps this could have been better spent bringing in the child care subsidy – now deferred for another year – which could assist in increasing workforce participation.

On the less positive side, spending $4 billion to provide higher income earners with an extra $6 a week seems less than ideal. Perhaps this could have been better spent bringing in the child care subsidy – now deferred for another year – which could assist in increasing workforce participation. Canberra bureaucrats also face some tough targets for a further ‘efficiency dividend’. Climate change did not get a look in. And of course the foreign aid budget has once again been cut.

With a Federal election now imminent, the Government has a positive message for small businesses and has shied away from any really unpalatable decisions. Perhaps that is the best we could have expected.

Nevertheless, Australia’s fiscal position is not something we can grow out of. Nor will we be rescued by a commodities boom. The time is looming large when tough decisions will have to be made about what we as a nation want and how we intend to pay for it.

Stay tuned, we will provide a more in-depth analysis to implications of the 2016-17 budget in the coming weeks.

Read ABC News’ special feature on the budget, featuring our Chief Economist Nicki Hutley:

Budget 2016 Cheat Sheet: What you need to know

You can also watch The Drum’s Budget Special, featuring Jane Caro, Warren Mundine, Mark Carnegie and Nicki Hutley. The panel discusses the Government’s budget announcement, tackling questions such as: What segments of society will be most affected? What are the initial impressions? What is the political spin from the parties?

For any further questions in the meantime, please contact:

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