Budget gets mixed economic report card
Supporters welcomed the benefits for small business but critics saw more politics than economics in a mixed reaction to Tuesday’s Federal Budget.
A number of economists and commentators contacted by InDaily also had diverging views of the economic assumptions underpinning the Treasury’s forecasts for growth, debt and deficits.
The view that Tuesday’s document reflected a significant turnaround in the political dynamic from the much disparaged 2014 Budget was widespread.
Con Michalakis, head of investments at Statewide Super, said “the Coalition and the Treasurer have done a volte-face – from Hayek to Keynes in one year!”
“We’ve gone from a budget crisis to an old style Keynesian stimulus within one year and are now relying on trend and above tend nominal and real GDP growth to wind back the deficit in the out years,” Michalakis told InDaily.
“The budget is as much political as economical and all about consolidating the Government’s position after last year’s fiasco,” he said.
NAB state general manager Tom Renda applauded the $5.5 billion small business package as a “terrific surprise for everyone” but said “the big wow factor was the shift from last year”.
“Last year’s Budget had a certain underpinning doctrine about it, about restraint and cutting and this year’s budget has basically said ‘we will continue to do that far more moderately’ and it has pushed out the expected surplus by about two-three years,” Renda said.
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Melbourne University economist Professor Neville Norman, speaking ahead of a NAB post-Budget luncheon, told InDaily that “in four decades of watching budgets I have never seen such a consecutive turnaround in the political philosophy”.
“Last year Mr Hockey said ‘I’m going to slug you’ and this year he said ‘I’m going to love you’,” Norman said.
He said there had obviously been a reappraisal of the economy and the adverse reactions to last year’s Budget “and they are related because last year’s incompetent budget showed the Government was not in control and it had adverse effects on business and confidence”.
“So if you can’t fix the budget you might as well fix the politics,” Norman said.
Beyond the politics of the Budget process, there were significant differences in views of the centrepiece of the Budget – the $5.5 billion package of measures to stimulate small business activity.
Mark Roderick, managing director of specialist advisory firm Perks, said “we are very happy with the measures outlined by the Treasurer to give small business a ‘shot in the arm’”.
“As small business owners approach the end of financial year, we would expect the $20,000 immediate write-off to be a measure that is particularly attractive to growing businesses managing tax liabilities that come with generating profits,” Roderick said.
However, he added: “Given the quantum of this concession, we would expect that it will stimulate short term spending, rather than investment over the longer term that creates more sustainable jobs and opportunities”.
“Nevertheless, an increase of spending in the short term will provide stimulus to small business that are currently ‘doing it tough’ across the country,” he said.
“In terms of the tax cuts for small business, they are of course welcome, but we would question the quantum of small businesses that are incorporated and turning over less than $2 million. In our experience businesses of this size are less likely to be incorporated, but would be operating as sole traders, partnerships or through trusts.”
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NAB’s Tom Renda said the benefit for small business was not limited to the “headline grabber – the 1.5 per cent cut in company tax”.
“The real value in this lies in the genuine attempt to do away with a lot of the administration, a genuine attempt to start chipping away at the compliance issue,” he said.
Con Michalakis said the support for small business was welcome, particularly in South Australia.
“As a South Australian it would have been nice to have had some of the northern Australian infrastructure package – a $5 billion concessional loan fund – in light of the coming closure to Holden’s, he added.
Asked his perception of the Government’s Budget focus on small business, Neville Norman replied: “I don’t think there was a strong focus on small business. Basically, the accelerated depreciation is just a timing issue, there is a little bit of benefit.”
“The focus was mainly words – in terms of the bottom line, it is not going to make a great deal of difference,” he said.
“The best thing the Government can do is restore confidence in its ability to run the economy … and although every small business is celebrating at the moment, I believe it is premature.”
Corporate advisory firm BDO also took a different view saying “this year’s Budget offers very little for the medium business sector”.
“Tax payers in the medium business sector are a very important part of the Australian economy. However, they pay more tax than the small business sector, but they seem to have been ignored in this Budget,” BDO said in its Budget analysis.
Michalakis had little confidence in the assumptions underlying the Treasury forecasts saying “the out year forecasts have to be taken with a grain of salt”.
“The lower oil price, lower rates and delaying of austerity has given the Australian economy a good chance to transition from a mining investment boom to something more balanced. However the non-mining investment assumptions in the out years are optimistic. At least the flat $48 a tonne assumption for iron ore is somewhat conservative.
“But the budget and the forecasts are all useless if China gets a ‘cold’, so to speak, or continue to transition heavily away from infrastructure towards consumption.”
Tom Renda was more confident of the Treasury forecasts.
“Interestingly there is some debate about how credible those numbers are. Our economists tell us the forecasts that are in the Budget are pretty much in line with NAB’s own forecasts,” Renda said.
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