Garreth Hanley:
This is With Interest, a business, finance and accounting news podcast, brought to you by CPA Australia.
Simon Downes:
Hello, and welcome to this special edition of With Interest. I'm Simon Downes. Well, it's the morning after the night before Federal Budget day 2024. And joining me to discuss it, what was in, what out, and who's paying for it, are Gavan Ord, who's our business investment and international lead at CPA Australia, and who's with me here in Canberra, and Elinor Kasapidis, who is our Interim Chief Learning and Innovation Officer at CPA Australia, who's on the line from Melbourne. Welcome to With Interest to Gavan and Elinor.
Elinor Kasapidis:
It's great to be back this year.
Simon Downes:
Treasurer Jim Chalmers delivered the budget at Parliament House in Canberra yesterday evening. Some of the headline announcements that he was keen to focus on were, of course, the cost of living measures, including help with energy bills for households and small businesses, as well as some tax incentives to encourage business investment in strategically important sectors of the Australian economy. There was a big emphasis on house building, the Future Made in Australia package, and, of course, the small matter of the stage three tax cuts for every taxpayer in Australia, which, of course, we were already aware of.
So Gavan and Elinor, I know you've spent a few hours, between you, looking over the details of the budget. Let's start with your overall assessment of the budget now that we're a few hours into all of the details, and whether it's shaped up like you were expecting. Elinor, let's start with you. What were your main thoughts as you listened to Jim Chalmers handing down his budget last night and now that you've had some time to reflect?
Elinor Kasapidis:
Thanks, Simon. My initial thought was, probably, not unexpected. The government did a lot of signaling ahead of time, and we understand where their thinking is coming from in the areas of industrial policy, and the stage three tax cuts were already passed. So I think when you look at it though, holistically, it looks like an election grab bag, so giving things to a lot of different people, but whether or not it's properly targeted and costed for the maximum impact.
You've got this $300 energy subsidy, which is intended, really, to game CPI a little bit, to try and look at how that impacts inflation numbers and reserve bank decisions on interest rates. And then you have this industrial policy that's starting to come together, this Future Made in Australia. But it's very piecemeal. There are some projects that have already been pre-picked, and how that's going to lead to a prosperous future in 50 years and cement Australia's place on the global economy, I think it's still a little bit more to do. And so that, for me, is more questions, perhaps. This government wants to win the next election, they want another three years, but I would like to see far more thinking, clarity and purpose behind what has been laid out in this budget.
Simon Downes:
Thanks, Elinor. And what about you, Gavan? How do you feel about the budget now that you've had a few hours to digest it? And the reaction of those who you've spoken to in the last few hours, what's the reaction been?
Gavan Ord:
Yeah, thanks, Simon. So usually the morning after the night before, I'm usually a little bit more reflective of the budget, and often some of the more positives come through when you think about it. On the night, we're pretty much going, "There's some missed opportunities here." I think, on reflection, the government clearly had inflation on its mind, so wasn't able to provide a huge amount of big spend except in the industry policy area. So Chalmers did do some cost of living relief. So in that sense, he was trying to stop the budget being expansionary, but at the same time, as Elinor said, there was quite a big investment in industry policy, talking tens of billions of dollars over many years. So in that sense, that'll be expansionary over time.
So I think he's walking a bit of a tightrope between trying to keep inflation under control, but also trying to reform, at least, one section of the economy. So on reflection, it's still a bit of a ... what’s the Seinfeld episode meh, meh? There was really nothing that stood out to me that's grabbing my attention. And as Elinor said, I think most of this was signaled. And just a reflection, all governments sort of signal budget announcements beforehand, but there's always something, a surprise on the night. There just wasn't that surprise in this budget. Everything was there signaled, so it was quite a different approach by this government to budgets than previous governments.
Simon Downes:
Well, before we go into some details about where the money will be spent, it's probably helpful to know how much the government had to play with, and where that revenue has come from. Gavan, can you just run us through some of the budget fundamentals that the treasurer noted last night?
Gavan Ord:
In terms of where the money's coming from, so their estimating revenue of $711 billion for next financial year. So where does that mainly come from? Well, individuals personal taxes, that's nearly half of the money. $335 billion from individuals. Company and resource rent taxes, so petroleum resource tax. That's $143 billion. GST is $92 billion. Superannuation taxes are $20 billion. And poor little old FBT $4 billion. That's where the revenue's coming from. In terms of what the actual figures look like. So we're looking at a, well, a surplus for this current financial year of $9.3 billion. But then for next financial year onwards, we're looking at deficits. So a $28 billion deficit for next financial year. And that's on the back of increasing expenses, particularly, in the areas of NDIS, defence and elements of the industry policy, aged care.
So the government has committed to quite a lot of expenses, and they're growing quicker than revenue. But also they're sort of predicting a fall off in commodity prices, as well, so that'll definitely impact company tax receipts, which Australia relies so heavily on. Just some of the other major economic data. GDP is forecast to grow 2% next year. Unemployment rate's meant to be around about 4.5%. The critical one, which Elinor spoke about, is government's forecasting inflation to average 2.75%. Now, that's important, because for the reserve bank, that's within their interest rate target range of 2 to 3%, which means they, potentially, could start cutting interest rates. But only late last week the RBA has a higher inflation forecast. Now, that's before this budget, but let's see if this budget, actually, makes a real impact on inflation and interest rates.
Simon Downes:
Well, let's jump into some of the detail and what the budget means for most Australians. We know that cost of living pressures was a big area of focus for the government. And in fact, in the lead up to the budget, CPA Australia asked our social media followers what they thought the government should be focusing on in the budget. Perhaps, unsurprisingly, cost of living was the number one area mentioned by respondents to the survey, boosting household finances. Gavan, just tell us about what the government has included in the budget to address cost of living pressures. I'm primarily thinking here about the energy bill, financial support that people will be getting. $300 off energy bills, would it make a real difference to many households do you think?
Gavan Ord:
Well, potentially, just to let listeners know, every Australian household will receive a $300 rebate off their electricity bill. I understand that'll be automatically applied, and that'll be delivered throughout 2024, 2025. But the major cost of living relief really is the stage three tax cuts, which we know about, and the government spoke quite a lot about the stage three tax cuts. And there was also some changes around HECS, which was also announced before, as well. So I think the major cost of living relief will be on stage three tax cuts for most Australians. And the $300 off energy bills, that'll be some relief. Interestingly, it's for all households and not targeted, which it's an interesting approach by the government.
Simon Downes:
Yes. Well, would it have been better to target the support, do you think? Elinor, do you have a view on this?
Elinor Kasapidis:
Thanks, Simon. Absolutely. The lower income households, those that are on JobSeeker or other payments, are struggling and that's where the inflation is really hurting them. Again, it comes down to is the government doing this to impact CPI figures and as an election sweetener, or are they really designing policy that targets the poorest and those with the greatest challenges in our economy? So again, this is why, when looking at a budget, it's political as well as economic. And when we read it, we need to understand the difference. What is actually good for Australia, what will contribute to our long-term productivity, and whether or not a $300 payment to all Australian households, just before an election, really achieves that.
Simon Downes:
There was more help for renters announced in the budget, as well. About a million Australians receiving Commonwealth Rent Assistance, we'll see a 10% boost in their fortnightly payments. Again, part of the cost of living relief. Elinor, I'm just coming back to you. There's always a risk with cost of living measures that they can contribute to inflation. This was an angle being pursued in media in the lead up to the budget. What are your thoughts on the impact on inflation?
Elinor Kasapidis:
It's a tightrope, and I don't know that any government around the world has really solved the problem. So we are in this situation where we've got inflation, people are struggling, but employment is pretty close to full. And So even the $300 payment, it's not massive in its total cost, it sounds a lot in the billions, but I think it's around what else is the government spending it on. So even though there's a surplus this year, we've got the deficits forecast. You can see they're going to be putting money into the economy through various investments in industrial policy changes.
All of that then trickles through the economy. Therefore, things like housing, if you're trying to build millions of houses by 2050 when we don't have enough builders, when planning permissions are not in place, you're just going to get supply blockages, and costs are going to go up. So I think it's a little bit naive, perhaps, to really not look at the structural problems that we have, the tax system being one of them, labour supply, housing supply, otherwise this inflation thing and the broader challenges are going to remain for quite some time, and that will hinder the government's ability to actually achieve what it looks like they're trying to do.
Simon Downes:
Gavan, anything to add?
Gavan Ord:
I think that's a really good summary. Things like ... you asked about the Commonwealth rental assistance. That's more targeted than $300 for all households. So the Commonwealth rental assistance increase, that's targeted at lower income earners. So I think that's good. But $300 for all households, I don't know. I don't know. And as Elinor said, there's a whole other groups of measure their implementing, which, over time, will add to inflationary pressures, and they're not addressing the structural issues Elinor talked about. The lack of skills in the workforce, supply constraints, lack of housing. So there's a whole lot of issues that government need to manage, and I know that they've got policies to address some of them, but the one policy they're not really addressing is tax, and tax reform, which hopefully we get into.
Simon Downes:
Exactly right. Well, I referenced the poll that CPA Australia ran on our social media channels earlier this week. Whilst cost of living measures was the number one area that people thought the government should focus on, there was also a really strong appetite to see some genuine substantive tax reform. Gavan, what tax related measures were included in the budget that's worth mentioning?
Gavan Ord:
Well, not many really, but I will say there's a few sort of ones that stood out a little bit. So the instant asset write-off for small businesses, that'll be extended for one year. It would've been good to make it permanent, but we'll see what happens, and noting that the instant asset write-off extension for last year still hasn't passed parliament, and we're only six weeks away from the end of financial year. There was also in the industry policy area, there's announcements around a couple of production tax incentives for hydrogen and for critical minerals. They're quite large, they’re in the billions of dollars, but they begin in around 2027. So there's a whole lot of what our former colleague, Paul Drum, used to describe, rats and mice announcements. I think in the show notes there will be a link to our detailed summary of the tax and super measures, which I encourage listeners to have a look at if they really want details on all the tax measures announced.
Simon Downes:
Elinor, no show stopping tax reform agenda for another year. What would you, ideally, like to have seen, realistically, from the government this year?
Elinor Kasapidis:
Tax is a long game, and for those of us in the policy space, I don't think, realistically, we could have expected anything. But that's not to say that CPI Australia, along with many other business and tax-focused policy groups, have been calling for a tax reform discussion for so long. And the more debt this government gets into, the more we have the dysfunction between the states and the territories on GST, as well as just state-based tax policies, Australia and the people will continue to experience productivity barriers. It's going to have capital shifting overseas to more competitive markets.
So I think it's around we can't keep kicking the can down the road, but no government ... and Australians, as well, don't seem to have the appetite for a robust debate, because, at the end of the day, when you change the tax system, there will be winners and there will be losers. You can increase the GST, and make sure though that your social security payments are adjusted to compensate for that. You might remove imputation, and that will be a massive impact on, for example, retirees and super funds. So how do you make those tough calls around how to rebalance things? But this continued dependence on personal income tax, and as inflation drives wages higher, and pushes more and more Australians into those higher tax brackets, it's a boon for the government, but it does really hurt individual Australians, and the businesses they run.
Simon Downes:
Gavan, let's talk about support for small businesses a little bit more. So we know that around a million businesses will receive an energy bill rebate, $325 applied over the course of the year. I think many business owners would've been watching the budget hopeful of some really significant interventions to help alleviate the cost pressures that they face, but I get the feeling that they will be left feeling a bit underwhelmed by what was in the budget.
Gavan Ord:
I think that's a pretty good summary of how many small businesses would feel on the night, or the day after. Yes, there was the electricity rebate that you announced, and the instant asset write-off we just announced, so there was a few things for small business. There's some extra money for the small business debt helpline, and small business owners confronting mental health issues. All good, all positive. All those are good and positive, but more needs to be done. We need to focus on building the capability and capacity of small businesses. And we know, from our Asia Pacific small business survey, that Australian small businesses underperform their competitors in Asia. And a large part of that is Australian small business owners don't necessarily have technology knowledge, the business skills' knowledge. So I think there needs to be more focus in on developing those skills, and if we do, we will see a more effective, fast-growing, innovative and creative small business sector.
Simon Downes:
Let's move on to some of the environmental issues mentioned in the budget. Tax incentives for green hydrogen and other industries. Gavan, your take on this.
Gavan Ord:
Well, first take is there's quite a lot in terms of building what government calls the Future Made in Australia initiative, and that's really centered around the renewables industry. And in the budget papers they talk about Australia becoming a renewable energy superpower, whatever that means. So the green hydrogen tax incentive, and there's a critical minerals production tax incentive, when you look at the numbers, they're pretty big. We're looking at billions of dollars a year.
Obviously, that's a reaction to some policies in other jurisdictions like the Inflation Reduction Act in the US. But to put it in perspective, some of those other incentives being put out by other countries, they're in the hundreds of billions of dollars. So in the context of that, Australian support is not huge. Not saying they're bad, just saying, is Australia just sort of catching up, and will this be enough to catch up? The other thing I just wanted to mention was there's about $10 million for ASIC, for it to continue its investigations around greenwashing. So obviously, that's an issue that keeps coming up. And there's also some extra funding around sustainability financing initiatives. The government wants to encourage the growth of sustainability financing in Australia.
Simon Downes:
Elinor, anything to add?
Elinor Kasapidis:
CPA Australia, we see ESG as a really important part of the future. So it is important that the government, in each of their budgets, does have clear policies to support the transition. Like Gavan pointed out, there is a lot of money, it's being handed out in certain areas. It's important, through a policy perspective, to make sure that things are being invested in the right things, that we are competitive, that we do have a prospect of long-term success, because we don't want money to be thrown into lovely ideas where Australia really needs to think about its position globally, and to focus on what we can do best.
But there is that recognition. Australians are really innovative. For example, CSIRO funding. It'd be great to see a bit more directed to them, so they can decide what will make money and what can be commercialised. I think one of the concerns is when you start to have these funds that start to think that they can pick winners better than the private sector, there's a lot that comes with that. So there needs to be exit strategies, good risk assessments, and a clear approach to how government investment is, actually, going to look.
Gavan Ord:
I just want to say hear, hear to that. There's so many ... industry policy is littered with failures that cost a lot of money and a lot of jobs. So that exit strategy is really important, and the governance around these investments is really important.
Simon Downes:
It was interesting that last night, even getting towards the end of the lock-up period, people were still seeing new details emerging from the fine print. Of course, thousands of words of budget papers to go through for those analysing them. Was there anything that has taken you by surprise or anything that was buried in the detail that maybe you didn't pick up on at first, but have later come across? Maybe, Gavan, you first?
Gavan Ord:
There's always a lot of little things in the budgets, which you pick up over time. One thing we picked up, which is relevant to our members, is that funding and the headcount for both the AASB and the AUASB is being increased. It's a short-term boost for next financial year only, and that's obviously around the climate-related disclosures, that assurance project. So expect to see more coming out of AASB and the AUASB on climate-related disclosures.
Simon Downes:
Elinor, any small details that have taken you by surprise or anything particularly interesting?
Elinor Kasapidis:
I'm probably still working my way through it. As a policy person, I think that announcements and what's in the budget papers are always a great start. What we find is that as policies are developed and you see legislation start to go through parliament, that's where a lot of the details, and the devil within them, come out. So I think these are, overall, okay. The idea and the intent that the government's heading towards, but I'm anticipating there'll be some tweaks and some surprises buried in these as the policy intent and the actual design becomes clearer.
Gavan Ord:
If I may just add that ... so I just picked up the budget papers where Elinor was speaking. I was listening to Elinor. Just a few quick things like, say, sweet potato growers. So there's been a reduction in the sweet potato growers levy to 1% of the sale value to nil. So sweet potato growers, great, your industry levies are down. Australia's got the Rugby World Cup in 2027 for the men, and 2029 for women, and there's tax measures around that, for the Rugby World Cup, to support that. So there's all these little things that come out in the papers, and actually for the people involved, they're really important, but if you're not involved, that can look a little bit amusing.
Simon Downes:
Well, before we finish up, it may just be worth reiterating the forward economic outlook for Australia. You touched upon the expected deficit to come in future years, Gavan. Is this consistent with what we're seeing globally? Australia is not an outlier in this sense, but what are you thinking in terms of the forecast for the years ahead?
Gavan Ord:
So look, the forecast for the years ahead are for deficits to continue, and Australia's net debt to continue to grow, but, as a percentage of GDP, to basically flatten out about 21%, 22% of GDP. Those figures in comparison to comparable economies around the world is, actually, not too bad. So Australia, actually, has a little bit more room to play in terms of debt and deficits than many other countries. In terms of growth, our major trading partners, like China, their growth is slowing, although they're still growing quite quickly in comparison.
US is starting to pick up, and Europe is not looking great. So in the global economy, I would say it's uncertain, and I think that's the words that the reserve bank, most recently, used. So it's a very uncertain environment, economically. Australia overall is looking okay. I'd much rather be in Australia than some of the European countries, at the moment, in terms of economics, but there are a lot of challenges. We are very much dependent on a small number of commodities, and the government wants to diversify the economy through this Future Made in Australia package. But there are risks attached to those packages.
Simon Downes:
And Elinor, any final thoughts on the big picture?
Elinor Kasapidis:
Well, the government itself has forecast deficits despite bringing in a surplus this year. And I think, we need to be clear that this is a choice that the government has made, so that there is that runway or that flexibility in our budget that Gavan alluded to. So the government is actually consciously implementing new policies that will increase deficits. And what that does, once again, is increase pressure on taxes. So one of my concerns is, if costs blow out, if new industrial policies are created, if things don't actually perform the way that they are expected to, those returns, those debt levels, are not going to be as good as what are predicted. And who ends up footing the bill? The taxpayer. So again, there's this dynamic where if the government chooses to spend its surpluses, and I think it's a missed opportunity for the treasurer to demonstrate fiscal responsibility. If they continue to choose to spend like this, there's got to be the broader question about, well, how much, what are the guardrails, and when do you realise that taxes are going to have to increase to pay for all of this?
Simon Downes:
Well, that brings us to an end of our Federal Budget special on With Interest. Thank you to Gavan and Elinor for sharing your thoughts with us. Check the show notes for a link to the CPA Australia website where you can see all of our experts budget analysis. And just a reminder that With Interest is a weekly podcast. Look out for our episodes, and don't forget to subscribe to CPA Australia podcasts on your favourite podcast app. From all of us here at CPA Australia, thank you for listening.
Garreth Hanley:
You've been listening to With Interest, a CPA Australia podcast. If you've enjoyed this episode, help others discover With Interest by leaving us a review, and sharing this episode with colleagues, clients, or anyone else interested in the latest finance, business and accounting news. To find out more about our other podcasts, and CPA Australia, check the show notes for this episode, and we hope you can join us again for another episode of With Interest.
