Summary of the budget update and response

20 Dec 2017 |

Economics and Industry Policy

  • Budget repair is critical and in that sense, the improved budget position is a welcome development. That said, we are concerned that repair is being driven by higher taxes.
  • The forecast deficit in 2017-18 has improved to 1.3 per cent of GDP ($23.6 billion), compared to 1.6 per cent of GDP ($29.4 billion) at the 2017-18 Budget. Contributing to this change is the upwards revision of company tax forecasts due to stronger-than-expected collections, increased company profitability and successful ATO enforcement activity.
  • We encourage the government, and the whole parliament, to pursue spending restraint so that government outlays can be put on a more sustainable path – a path that is fair to all Australians.
  • Strong business conditions and still buoyant business confidence suggests that the economy should continue to improve over the course of 2018.
  • Real GDP is forecast to grow by 2½ per cent in 2017-18 and 3 per cent in 2018-19 after growth of 2.0 per cent was achieved in 2016-17.
  • Notwithstanding the prospect of a modest slowing in household consumption, non-mining business investment is picking up and the pipeline of infrastructure spending remains strong.
  • Growth in non-mining business investment was stronger than expected in 2016-17 and is forecast to remain solid at 5 per cent in both 2017-18 and 2018-19.
  • We want a stronger, wealthier economy and greater prosperity for Australian families.  A key way the government can help achieve this is by ensuring taxes are as low as possible so that businesses have the money they need to employ and invest and consumers have the money they need to purchase goods and services for their families.
  • We encourage the government to continue fixing the books by focussing more on government outlays and making them more efficient, effective and fit for purpose.

Higher Education

  • Overall, for higher education, a number of measures in accordance with our principles.  More targeted fiscal savings would have been better but the government has proceeded in line with the parliament constraints.  MYEFO language says “proceeding with Higher Education Reform to improve transparency, accountability, affordability and responsiveness to the aspirations of students and future workforce needs.”  We would agree with these objectives.
  • This is still a net hit to the budget of over $300 m as they have had to write back the savings from the failed higher education package and then have proposed cuts that do not need legislation including:

–  a freeze on total Commonwealth Grant Scheme (CGS) funding from 1 January 2018, set at 2017 funding levels, for bachelor degree courses in 2018 and 2019.  This was expected, and replaces the previous proposal for an efficiency dividend.  We have called across-the-board funding changes a blunt instrument but it is fiscally responsible given that the universities have refused to engage in reform discussions.  The freezing of the CGS is projected to be a cut of $2.1 billion to universities over the forward estimates, but as mentioned still better than the net impact of the previous reforms.

–  performance targets for universities to determine the growth in their CGS funding for bachelor degrees from 2020, which would be capped at the growth rate in the 18-64 year old population;  We support the proposition that at least some funding should be performance based.  This initiative may have the effect of capping places pegged to the population growth rate, but more analysis is needed.

–  from 1 July 2018, revised repayment thresholds under the Higher Education Loan Program (HELP) that include a new minimum threshold of $45,000 with a 1 per cent repayment rate and a maximum threshold of $131,989 with a 10 per cent repayment rate.  The current threshold is $55,874 and the earlier higher education reforms proposed $42,000.  The current maximum is $103,000 with a 8% repayment.  We supported lowering the minimum threshold based on evidence that most impact will fall on higher income households with part time employment.

–  from 1 January 2019, a combined lifetime limit for all tuition fee assistance under HECS-HELP, FEE-HELP, VET FEE-HELP and VET Student Loans of $104,440 for most students and $150,000 for students undertaking medicine, dentistry and veterinary science courses; and

–  from 1 January 2019, a new allocation mechanism based on institutional outcomes and industry needs for sub-bachelor and postgraduate Commonwealth Supported Places.  This is in line with our PBS that indicates that sub-bachelor and post-graduate funding needs to be reviewed.  University of Melbourne may be concerned about this as their model attracts a strong share of the existing post-graduate supported payments.

–  The Government will also align the repayment thresholds for the Student Financial Supplement Scheme (SFSS) with the new HELP repayment thresholds. From 1 July 2019, SFSS loans will be repaid after the repayment of HELP loans.

–  $7 m in 2017/18 to accommodate the Menzies Institute and Library at the University of Melbourne.

–  An extra $1.9 million to TEQSA in 2017-18 to meet an increased regulatory workload and enhance compliance capability.

VET

  • Extra fees on Registered training organisations using VET Student loans to raise $14.6 m over 5 years from 1 July 2017.  These fees were known to stakeholders and will have a negative impact on access to higher VET qualifications because they deter some providers from delivering.
  • Tuition assurance interim services to cost $3.2 million over 2 years from 2017-18.

Schools

  • Increase payments of $1.3 billion over 4 years and $5 billion over 10 years – in line with package that was negotiated after the Budget.
  • An additional $4.1 million over 2 years to extend the Flexible Literacy in Remote Primary Schools program.

Child Care

  • Savings to family day care service payments through increased compliance efforts expected to save $1 billion over four years.
  • In home care program announced today – $147 million over 4 years – we support subsidisation for Nannies in a structured environment and this program targets parents who work non-standard hours or are in remote locations.  Aims to cover 3000 places.  This program supersedes the nanny pilot.
  • $73 m to introduce other aspects of the Child Care package.

Welfare

  • Extending, generally from 2 years to 3 years, and expanding the requirements for newly arrived migrants to wait before they can access certain welfare payments – saving $1.3 billion over 4 years.
  • Requiring Family Tax Benefit lump-sum, reconciliation or instalment arrears payments to be used to repay outstanding social security, student assistance or Paid Parental Leave debts saving $177 m over 4 years.
  • Saving of $322 million to freeze the higher income threshold for Family Tax benefit eligibility at current level to 30 June 2021.  This is in line with our recommendations for restricting FTB at upper income levels.
  • Income support for seniors expected to decrease by $755 m over 4 years largely reflected slower than expected growth in the number of age pension recipients.  Given the aging population this must reflect a projection of older Australians staying in the workforce which is positive news.
  • Savings of $177.

Employment

  • Pacific Labour Scheme announced on 8 September 2017 which follows the current pilots. Projected 2000 workers with a gain to budget of $81 m over 4 years.
  • Seasonal worker program – improved admin and streamlining expected to increase use and lead to a $44 m benefit to budget over 4 years.  Both of these schemes are supported by members but administration and costs had been an issue.
  • Expenditure of $10.3 m over 4 years to support workers in industries impacted by structural change.
  • Reducing education outcome fees paid to DES providers to encourage job outcomes, saving $4.9 million over 4 years.
  • WA signed onto NDIS which has increased the cost of the NDIS in the budget.

Adult Migration English Program (AMEP)

  • $13.3 m over ten years from 2017-18.

Tourism

  • Reductions in tourism promotion – no impact in 2017/18, $1 m each in year 2 and 3, and $9 m less by 2020-21 = $11 m less over the forward estimates.

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