The upcoming federal election on Saturday 18 May has voters questioning election and budget promises, with new campaign messages promoting new policies and proposed budget updates daily. Some key topics that continue to divide the country on their level of priority include tax breaks, climate change, health, housing and investment in businesses.
Treasurer Josh Frydenberg announced in April what key areas the Coalition government plans to focus on if they are re-elected. This year’s budget highlights tax cuts with a focus on income tax and small to medium businesses, large infrastructure projects, and the promise of a surplus bottom line.
Experts from The University of Queensland Business School provide an insight into how the proposed 2019-20 budget may affect Australians if the current government is re-elected.
How much will you save?
The Coalition’s budget increases income tax cuts to benefit low to middle earning households. The new tax offsets will see those earning up to $126,000 receive a rebate of $1080 ($2160 for dual-income households), which is almost double what the previous tax cuts introduced in July of last year were. It will also reduce the tax from 32.4 per cent to 30 per cent for those earning in the bracket of $45,000 – $200,000.
However, Australians who offset their income with welfare, such as Youth Allowance, could see a reduction in their benefits. People using these benefits will now be required to report their income every fortnight, which will then be checked by the Department of Human Services. The current government hopes this step will make the people on these benefits more honest and is predicted to save the Government $2.1 billion over five years.
UQ Business School finance expert, Associate Professor Barry Oliver noted that since people will have to report their fortnightly income, it will make overpayment “less likely”.
“It is a loss for those who try to beat the system, but the good news is this means fairer payments to those who qualify for benefits,” said Associate Professor Oliver.
He noted there will be no change in unemployment payments.
Small to medium businesses – what’s in it for you?
The government’s new budget proposes tax cuts and an increase in instant asset write-off for small to medium enterprises (SME).
The current tax rate for SMEs will drop from 27.5 per cent to a proposed 25 per cent in 2021-22, which is five years earlier than planned.
Additionally, the instant asset write-off will increase from $25,000 to $30,000 for businesses with a turnover of less than $50 million. This is the second increase in the last few months; the write off already increased from $20,000 to $25,000 in January.
While the Coalition Government is trying to demonstrate they are in favour of small businesses and doing what they can to push their growth, UQ Business School SME and innovation expert Dr Sarel Gronum thinks more could have been done.
Dr Gronum thinks these budgetary initiatives are a “good first step”, but believes the budget offers very little assistance to help small businesses grow and to be competitive in global markets.
“The commercial incentive to innovate isn’t there”, said Dr Gronum.
“There are a lot of sunk costs required to get a breakthrough innovation and the cycle is normally upwards of four years. You need to incentivise businesses to invest in the long-term and more can be done to encourage innovation”.
A concern for Dr Gronum is the risk of an economic downturn which would threaten Australia’s business competitiveness. He believes Australia needs to invest wisely to ensure its business sector is strong enough to thrive even in uncertain economic times, and that means looking to the small to medium businesses who push forward even in the face of adversity.
Financial planning for the new budget
The government claims that the proposed budget will ease the cost of living and help stimulate the economy; however, Mark Tanner a lecturer in Finance at UQ’s Business School believes that cost of living expenses will not be affected at all.
“The measures are temporary and provide short term relief but do nothing to impact longer run costs,” he said.
Mr Tanner stated that while the “temporary and short term relief” could be spent by low-income earners which would benefit the economy, there is a chance that the money is more likely to be saved.
“The risk with these measures in cities such as Sydney and Melbourne, is that the money will be saved, due to the negative wealth effect from the housing price declines. As such, these measures will not help stimulate the economy”.
As far as personal financial planning, Tanner’s advice is to “save more”. He believes this is the only way individuals can prepare or protect themselves.
“Australians will have that little extra to put aside in case of economic difficulties with the proposed changes and uncertain global economy”.
What happened to sustainability?
The Coalition’s budget did little to suggest any significant plans regarding sustainability for the future or climate change, a point which appears to be more significant to the Australian public than either major party accounted for. Media have recently dubbed the upcoming election, the ‘climate change election’.
The proposed budget briefly mentioned an incentive for businesses to reduce carbon emissions –The Climate Solutions Fund. However, given the increasing support for sustainable-orientated ideas and the rise of climate change activists, a lot of people were left wondering why the budget lacked investment and mention of the environment.
UQ Business School’s finance and sustainability expert, Associate Professor Jacquelyn Humphrey believes “The Climate Solutions Fund is a good initiative, but it is not clear to me that this will provide adequate emissions reductions to get Australia on track”.
According to Associate Professor Humphrey, to have any significant impact on reducing emissions, Australia needs to target the energy sector (electricity, stationary energy, and transport) as they produce the most emissions.
On the topic of climate change, Associate Professor Humphrey is “disappointed” that Australia is not taking it more seriously.
“The government needs a much more coordinated strategy to be able to combat key environmental issues,” she said.
Associate Professor Humphrey shared three key ways the government could strategise a plan to combat climate issues:
- Government incentives around individual and corporate use of green electricity and transport options.
- Compulsory emissions reporting by all companies, helping to ensure they are on track to meet their portion of emissions reductions.
- Funding for research and integration of green technology, and making green technology more affordable.
Want to engage with the expertise of UQ Business School experts? Find out more here.
Media: Emma Pryor, UQ Business School Communications Manager, e.pryor@business.uq.edu.au, +61 7 3346 4506
