The personal income-tax plan means fiscal policy will be slightly more stimulatory for the economy than if no policy changes had been made.
However their impact on household budgets is unlikely to be felt until 2019-20 when the newly introduced low and middle income tax offset s received as a lump sum after individuals lodge their return.
For 2019-20 tax measures will contribute a total $A4.1 billion to the economy according to budget estimates, rising to $A4.5 billion to 2021-22.
Commonwealth capital spending (in the form of direct capital investments, grants to the states and territories for capital purposes and investments in financial assets for policy purposes) was very little changed.
The increase lifts capital spending by 0.1 per cent of GDP or less each year, with newly announced projects already allocated funding last year. The capital increase in the 2017-18 estimate was related to the government’s purchase of the NSW and Victorian Government’s Snowy Hydro equity, rather than related to new spending.
For small business the $A20,000 instant asset write off was extended for another 12 months to 2019. The government included no changes to the plan to cut the company tax cut rate despite not yet having support to pass the measure through the Senate.
ANZ Research is supportive of personal tax plan which seems necessary to give households some relief from bracket creep, which would have eaten up some disposable income.
The plan however is complex in order to isolate the benefits to low- and middle-income earners initially and lessen political criticism.
A lack of further funding for capital investment is a little disappointing. There are also some contradictions in that the government is encouraging increased workforce participation (amongst older Australians) but by introducing a low- and middle-income tax offset is decreasing incentives to work (by making some income earners’ effective marginal tax rates higher).
Increased workforce participation is one way of increasing the productive capacity of the economy and promoting growth.
From a fiscal management point of view however, this budget is impressive in that the government has banked some of the revenue gains, made an effort to lower debt and not spent extensively - despite the upcoming election.
Cherelle Murphy is a Senior Economist and Jack Chambers is a Market Economist at ANZ
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