Budget Overview

Budget Overview

Driving Competitive Advantage in Supply Chain and Logistics

The Treasurer Scott Morrison handed down his budget last night.  There have been all sorts of releases concentrating on infrastructure and snapshot summaries but as I write this from Canberra on one of the most important days of the financial calendar a snapshot did not seem sufficient.  At the Supply Chain & Logistics Association of Australia we understand that the budget affects the whole supply chain not just part of it so we have covered it.

The Budget sets out the Government’s economic plan to ensure Australia continues to successfully transition from the mining investment boom to a stronger, more diversified, new economy in three ways firstly by sticking to the Government’s plan for jobs and growth through:

A Ten Year Enterprise Tax Plan that will boost new investment, create an support jobs and increase real wages, starting with tax cuts for small and medium-sizes enterprises, that will permanently increase the size of the economy by just over one per cent in the long term; continued investment in the National Innovation and Science Agenda, including support for new start-up businesses; securing an advanced local defence manufacturing industry through the twenty year defence industry plan, driving new high-tech jobs in Australia, including 3,600 direct jobs as part of the Government’s naval shipbuilding program; opening up more export opportunities through trade agreements that are already delivering new jobs and markets for Australian producers, manufacturers and service providers; and working to get more than 100,000 vulnerable young people into jobs in the growing Australian economy by giving them real work experience with real employers that leads to real jobs.

Second by fixing problems in the tax system to enable us to sustainably cover the Government’s responsibilities for the next generation by; combating tax avoidance, especially by multinational corporations, to ensure everyone pays the tax they should on what they earn in Australia; closing off generous superannuation tax concessions for Australia’s most wealthy and better targeting superannuation tax concessions to support working Australians build independent wealth for their retirement; and giving hard working Australians and the Australian businesses that employ them greater tax relief to earn more without being taxed more

And Third ensuring that the Government lives within its means, to balance the budget and reduce the burden of long-term debt by: continuing to keep government spending growth under control and to ensure spending is as efficient, effective and well-targeted as possible; targeting welfare abuse to ensure the social safety net is there for Australia’s most vulnerable, in particular those with disabilities; and responsibly investing in infrastructure like roads, rail, dams and public transport and guaranteeing real, affordable funding for health and education services that Australians rely on.

The resources sector will continue to play an important role in our economy – the economic transition is about broadening growth to other sectors of the economy.  Growth is shifting to the more employment intensive services sectors.  The largest employment growth over the past year has been in the household and business services sectors, such as health and retail trade. The unemployment rate has fallen and more Australians have entered the workforce.  The flexibility of the economy and new export trade agreements mean that we can also take advantage of transitions happening in many other economies.  A rising Asian middle class and ageing populations within our region offer opportunities to export more services. The number of tourists visiting Australia from China exceeded one million for the first time in 2015.  Future visitor growth is likely to come from India, as well as other emerging countries in Asia.  International student enrolments are also growing strongly, while Australia’s reputation as a leading provider enrolments are also growing strongly, while Australia’s reputation as a leading provider of services continues to grow.  Almost 300,000 jobs were created in 2015.

The Government’s Ten Year Enterprise Tax Plan will support growth, higher wages and jobs by lowering the tax rate for companies over time to an internationally competitive level.  The Government will better target superannuation concessions while ensuring that incentives for individuals to save for retirement continue.

The 1.1 billion National Innovation and Science Agenda and new measures to support innovation will put Australia on the right track to becoming a leading innovator.

The Government has committed a record $50 billion in infrastructure investment between 2013-2014 and 2019-20 for roads, rail, airports and dams.

The twenty year defence industry plan is underpinned by the Government’s commitment to grow Defence funding by 2 per cent of GDP by 2020-21, transforming the defence manufacturing industry.

The $840 million Youth Employment Package will provide and innovative approach to help up to 120,000 vulnerable young people secure jobs.

The Government is committed to restraining growth in spending and to sustainable revenue policies that will support economic growth while returning the budget to balance.

Maintaining spending control will create opportunities to deliver future tax relief as the budget position allows, while charting a sustainable path back to budget balance and reducing the fiscal burden on future generations.

The Australian economy is entering its 26th year of uninterrupted growth despite an uncertain international environment.  Australia is growing faster than all major advanced economies and well above the OECD average.  The economy is forecast to grow by 2 ½ per cent in both 2015-2016 and 2015-2017 and to pick up to 3 per cent in 2017-2018.  Near-term economic growth is being supported by household spending, investment in housing and exports.  This strong economic growth is also underpinning strong jobs growth.  Almost 300,00o jobs were created in 2015, the most created in a single year since 2007.  Historically low interest rates and a lower exchange rate compared with the peak of the mining boom are supporting households and business.

Global growth has weakened with growth in the United States having moderated, continued sluggish European growth and economic difficulties in a number of commodity exporting countries.  However, growth in Australia’s major trading partners is expected to remain higher than global growth, reflecting Australia’s trade links to East Asia where growth remains relatively strong.  There are also opportunities for Australia as our transition towards the service sectors is synchronized with growing wealth in China and demand for our services.

Spending restraint underpins a sustainable path to balancing the budget.  The Government remains strongly committed to returning the budget to balance as soon as possible.  Government spending as a share of the economy has remained close to post-GFC highs and would be even higher without the savings measures taken by the Government to date.  Even with these measures, Government spending as a proportion of GDP is projected to remain above its long-run average.  In contract, receipts are expected to recover to their long run average levels by 2017-18.  Spending restraint is essential remain on a path towards a balanced budget, lower Government debt and a lower tax burden over time.

Since the 2013-14 mid-year budget review, the Government has announced overall savings of $144 billion through sensible reductions in spending and targeted measures to make Australia’s tax system more sustainable.  In particular, increases in Government payments have been more than offset by reductions in payments in other areas – rather than funded by increasing taxes on Australians.

As a result of this spending restraint and fiscal discipline, Government payments as a share of GDP are forecast to decline from 25.8 per cent of GDP in 2016-17 to 25.2 per cent of GDP in 2019-20.  It is essential that the Government continues to focus on responsible spending restraint.  The Government is committed to ensuring that the $13 billion of unimplemented expenditure savings measures are passed by the Senate or alternative savings measures identified to continue on the path to a balanced budget.  The budget is projected to return to balance by 2020-21.

Living within our means the government remains in a continued phase to balance budget despite the challenges presented by changes in the economic outlook. The underlying cash balance is expected to improve in each and every year over the forward estimates from a deficit of 2.4% of GDP in 2015-16 to 0.3% of GDP in 2019-20.  The overall impact of policy decisions in this budget has improved the bottom line by 1.7 billion.  Payments remain steady or less than 2015-16 midyear budget review levels.  Real payments growth has been limited to an annual average of 1.9% over the forward estimates by controlling expenditure.  Payments as a proportion of GDP are expected to fall to 25.2% by the end of the forward estimates but more needs to be done. Despite lower than anticipated growth in tax receipts, resulting in a decrease in forecast receipts of 14.7 billion over the four years to 2018-19, the tax to GDP ratio is expected to return to its long run average of 22.3% by 2017-18. The budget is projected to return to balance by 2020- 21.

Creating sustainable growth and jobs with a focus on small business.  Our future depends on how we continue to support growth as we transition to a stronger more diversified economy.  Australia needs a sustainable tax system that supports economic growth. The 10 Year Enterprise tax plan will help underpin Australia’s future economic success to attract new investment and create jobs. This plan will support growth higher wages and jobs by lowering the tax rate for companies over time to an internationally competitive level.  To grow and prosper in Australia we must attract new investment to support economic growth. Creating and improving living standards and the corporate tax rate is hard by international standards and well above the average for OECD countries; If we are going to be competitive in the 21st century we need a competitive tax system. Small businesses contribute significantly to the Australian economy employing over 3 million workers.  To make it easier for businesses to invest grow and hire more workers the tax rate for companies will be lowered starting with small business from the 1 July 2016.  From 1st July Businesses with an annual turnover of less than 10 million will have a tax rate of 27.5%. The company tax rate will be progressively lowered to 25% by 2026-27 for all companies.  The government will also extend a range of concessions already available to small businesses with a turnover of less than 2 million and all businesses with turnover less than 10 million from 1 July 2016.  The government will make sure assistance is available for all small business by increasing the tax discount 8% for unincorporated businesses with annual turnover less than 5 million capped at $1000.00.  This discount will be further increased in phases to reach 16% by 2026-27. 

The National innovation and science agenda is helping Australia’s harness new sources of growth to deliver economic prosperity. Innovation is critical to Australia’s growth and standard of living.  Supporting innovative firms to seize new opportunities will create competition, access to new markets and employment growth.  Australia has the fundamentals in place to be a leader in innovation. We need to take advantage of our strengths to foster business activity and new ideas. The 1.1 billion National Innovation and Science Agenda and new measures in this budget will support a culture of ideas in innovation to encourage commercialization, reward enterprise and facilitate investment.  The government is making it easier to obtain capital, collaborate with researchers and attract talent from overseas.  Improved insolvency laws crowd sourcing funding laws and tax laws will support innovative Australians and encourage investment.  Reforms to employee share schemes and the tax concessions for early-stage investors and venture capital will encourage investment in innovative start-up firms.  The government is amending section 46 of the Competition and Consumer Act 2010 to prevent the misuse of market power by dominant firms.  Improving the laws clarity, effectiveness and force will improve choice for consumers and support innovation by new businesses.  An industry led cyber security growth centre will create opportunities for businesses to grow and strengthen Australia’s cyber security industry.

The Governments for FinTech statement is our plan for a strong and vibrant FinTech industry in Australia.  The government will encourage the exploration of block chain technology including through a study on pilot testing done by the CSIRO Data61.  We will also introduce changes to the GST to ensure that consumers are no longer double taxed when using digital currency currencies such as bit coin.  The Australian Securities and Investment Commission will also release a consultation paper in the coming weeks on a regulatory sandbox exemption to facilitate the testing of new FinTech products and services.

The 2016 defence White Paper builds a more capable force to protect our interests and a stronger partnership with the Australian industry.  It provides an additional 29.9 billion for defence and brings investment in capability to an unprecedented 195 billion over the decade to 2026-27.  This includes new naval capabilities such as 12 new regional submarines, nine future frigates and 12 offshore patrol vessels.  The future submarine project is the largest and most complex defence acquisition Australia has ever undertaken building submarines frigates offshore patrol vessels and Pacific patrol boats and Australia will directly secure over 3,600 jobs as well as thousands more jobs in the supply chain.  It will also insure Australia retains a sovereign capability to build and sustain its naval vessels.  The government is committed to maximising opportunities for Australian businesses to deliver these essential military capabilities.  The white paper provides $1.6 billion to build industry competitiveness and skills while harnessing Australian innovation and expertise. This budget also provides $686 million for continued military operations to help protect Australia.  Cyber security is vital to our economic and national security.  This budget provides $195 million to deliver a comprehensive cyber security strategy for Australia which builds on the $38 million announced in the National Innovation and Science Agenda. The naval shipbuilding plan is for 54 new vessels in Australia.

Australians will see key benefits from greater access to overseas markets and more affordable prices for household items. To the north Asia trade agreements Australia has three significant new trade agreements with China Japan and Korea.  They cover a greater share of our exports and all our previous trade agreements combined.  This trifecta of trade agreements mean Australian export now has preferential access to all these North Asia Powerhouse economies including China’s burgeoning services sector.  This kind of access is unprecedented and unmatched by any major advanced economy.  The trade agreements mean that Australia is seen by international investors as a go to destination for establishing export platforms to tap into North Asian markets transpacific partnership.  The historic transpacific partnership or TPP agreement will eliminate more than 98% of tariffs among 12 economies (Australia, Brunei, Canada Chile, Japan, Malaysia, Mexico, Peru, New Zealand, Singapore the United States and Vietnam.  Tariffs on US $9 billion of Australia’s exports to TPP countries will be eliminated once implemented.  The agreement will drive jobs creating growth across the Australian economy.  Reductions in tariffs and other trade barriers will establish a seamless trade and investment environment when combined with our landmark North Asia trade deals.  The TPP will also provide greater opportunities for businesses to reduce costs and red tape and facilitate participation in regional supply chains.  The TPP offers a pathway to trade and investment across the entire region. The government is also championing participation in the Asia region funds passport which will enable Australian fund managers to more easily export their services to foreign clients.  Four of Australia’s five largest export markets are currently covered by export trade agreements. 

The government is helping to build a more profitable resilient and sustainable agricultural centre sector.  The government is helping farm businesses get more access to overseas markets supporting agriculture.  Agriculture is a vital part of the Australian economy exporting over $40 billion of goods annually.  This budget builds on the government’s $4 billion agricultural competitiveness White Paper reinforcing the government’s commitment to ensure the sector remains as competitive as possible.  The government has appointed five additional agricultural counsellors in key markets. These counsellors will help negotiate access arrangements which will build on opportunities created by export trade agreements with China, Japan and Korea.  The 1.2 billion white paper on developing northern Australia includes $100 million beef roads program to ensure that farmers can get their cattle to markets.  This also includes a $75 million cooperative research Centre for northern Australia that will identify opportunities for research that can benefit industries in Northern Australia including agriculture. The new ACCC Agricultural Commissioner has begun work to encourage fair trading and stronger competition in agricultural supply chains and new country of origin labelling scheme from 1 July 2016 will ensure consumers are not misled about the origins of the food they buy.  Enhancements to the farm management deposits game will allow primary producers to set aside get greater cash reserves in good years and make it easier to access in low income years   The government is also providing 7.1 million to fund additional rural financial counsellors who will provide free financial advice to farmers in drought affected areas creating an innovative pathway to work.

For young people as Australia’s transitions to a more diversified economy it is critical to ensure that young people have the opportunities to thrive in the growing sectors where their skills can be put to use.  Due to their lack of experience often they have difficulty getting the start they need in the workforce the government is investing $840 million in an innovative youth employment package to help 120,000 young people over four years secure jobs.  To achieve this the government has created a new Youth Jobs PaTH (Prepare-Trial-Hire) Programme for young people. The youth jobs path program responds directly to business feedback that more needs to be done to increase young people’s employability and to provide them with real work experience.  The pathway will be open to vulnerable job-seekers under 25 years of age who are in employment services.  The youth jobs path program comprises three stages that can be undertaken flexibly allowing young jobseekers to tailor a pathway to work that best suits their needs and builds on their individual strengths and experience.  Stage one of the path-way is intensive pre employment skills training which will help prepare young jobseekers for work by providing them with the basic employability skills they need in the workplace.  Stage two was an internship placement that links young people with businesses providing valuable work experience in allowing them to trial the jobseekers fit in the workplace.  Up to 30,000 jobseekers each year will gain a 4 to 12 week placement in an industry of their choosing.  Interns will receive an incentive payment of $200 a fortnight paid in addition to their income support and businesses will receive an upfront payment of $1000 to host them. Stage three employers who hire an eligible young jobseeker in an ongoing job will receive an accelerated wage subsidy of up to $10,000 paid over six months through simpler and more flexible arrangements.  The youth jobs path program is supporting self-employment and entrepreneurship among youth in addition to creating their youth jobs pass program.  The government is investing in extra $88.6 million in supporting those jobseekers including young people who wish to start their own business.  This complements the government’s national innovation and science agenda and will help more young Australians capitalise on the opportunities presented. The government is encouraging entrepreneurship including the expansion of the successful new enterprise incentive scheme eligible for New Enterprise Incentive Scheme.  This will be broadened to allow access to self employed training and mentoring for jobseekers who were not on income support including those not in employment.

Australian families and businesses should be aware that the government is focused on living within our means by keeping expenses down, to balance the budget and to pay down debt by issues caused in avoiding tax responsibilities.  They will be zeroing in aggressively on tax minimisation scams by individuals and companies who do not pay their tax.  In doing so they are hurting the budget and reducing vital funding for the Australian community.  The government will also strengthen the protections for whistle-blowers who come forward and report tax avoidance.  The ATO will strengthen transfer pricing rules to reduce opportunity for companies to avoid paying tax on business activity in Australia and shifting products profits offshore.  Corporate tax integrity compliance and transparency measures will help the government’s goal of having Australia as the world leader in the global fight against tax avoidance.

The government is responsibly investing in infrastructure in cities and regions investing a record $50 billion in infrastructure between 2013-14 and 2019-20. They are investing in roads, rail and dams and the government has reallocated $1.5 billion in funding for Victorian transport infrastructure. This includes upgrades for the Monash Freeway, the Murray Basin Freight Rail, the M80 Ring Road and urban and regional roads.  In Western Australia the government is investing $490 million in the Forest Field Airport Rail Link and an additional $261 million for the Perth Freight Link for Section 2.  In Queensland $200 million is being invested in the first stage of the Ipswich Motorway. For the Melbourne to Brisbane inland rail scheme $594 million in additional equity funding is being provided to the Australian rail track corporation to acquire land.  A $2 billion national water infrastructure loan facility will support major water infrastructure projects such as dams, building on the $510 million national water infrastructure development fund.  The government is also committing a further $115 million to continue preparatory activities at Western Sydney airport.  The government has finalised or is close to finalising agreements under the asset recycling initiative which four states and territories worth $3.3 billion.  These these agreements will unlock over $23 billion in state and territory infrastructure spending including for the Sydney and Melbourne Metro projects.

The smart cities plan will ensure that it is easier to invest and do business in our cities so that they can become even better places to live and work.  The Government’s New infrastructure commitments are; $920 million every year for the extension of the following programs from 2019-20; roads to recovery, black-spot, heavy vehicle safety and productivity, bridges renewal and national network maintenance. $216 million will be allocated for section 2 of the Perth Freight Rail Link, $490 million for the Forest Field Airport Link in Perth, $1.5 billion essential Victorian infrastructure, $200 million upgrading the first stage of the Ipswich motorway, $115 million preparatory activities at Western Sydney airport and $2 billion for the National water infrastructure loan facility to support major water infrastructure’s projects.

That’s a wrap! If you want further details on the budget please go to the Australian Government webpage:



Amanda O’Brien
SCLAA National Chairwoman