top of page

2017 Budget - Clever Politics and Smart Economics

On the surface the 2017 budget has the appearance of a generous big spending ALP budget but it actually contains no new recurrent spending.

This conclusion is made by considering changes in the budget relative to last year's mid-year review. On this basis, there is $20 billion in new taxes over the forward estimates plus an $8 billion in reduced spending due to “parameter” changes - largely reflecting lower expected payments in some programs like disability support and private health insurance rebates. This helps fund an $11 billion reduction in future budget deficits over the forward estimates, a $3 billion reduction in revenue due to lower expected tax receipts, and around $14 billion in foregone spending cuts the Government now concedes it won't get through the Senate.

In this sense, the new spending in health and education is met by cuts elsewhere – such as slugging Universities and cutting family tax benefits. It's also not true the higher Medicare levy helps fund the NDIS. It was already funded.

The economic forecasts seem reasonable – with expected growth around potential this year and next which even a touch conservative compared to those produced by the Reserve Bank a week ago. The budget's commodity price forecasts are also reasonable, anticipating some decline from recent, unsustainable high levels.

The "technical assumption" of above-potential growth in the out years – such that the unemployment rate falls back to its full-employment level of 5% is also nothing new and should remain a desirable policy expectation. In this way, the Government is effectively targeting a return of the “structural” budget to balance over this period.

The raft of housing affordability measures are very much token gestures that will not reduce housing costs either way for all Australians.

That said, the Government’s increased commitment for infrastructure spending is refreshing and well timed given the challenges faced by the economy as the housing boom eventually fades.

All up, the modestly improved budget projections founded on still relatively conservative economic assumptions should not unduly threaten Australia’s AAA credit rating anytime soon. The RBA will likely take heart from the Government’s commitment to even more infrastructure spending in the years ahead, as it will lessen the downside risks to economic growth.


This information is current as at 10/05/17. This article has been prepared by Heart1Stop, a social media brand owned by Heart Mortgage Services and Heart Financial Advisers. The information contained in this article is an overview or summary only and it should not be considered a comprehensive statement on any matter nor relied upon as such. The views expressed here are not those of Heart1stop, Heart Mortgage Services, Heart Financial Advisers, shareholders, directors or staff and associated contractors and business associates. This article has been prepared without taking into account any person’s objectives, financial situation or needs. Because of this, you should, before acting on any information contained in this article, consider its appropriateness, having regard to your objectives, financial situation or needs. Any taxation information contained in this article is a general statement and should only be used as a guide. It does not constitute taxation advice and is based on current laws and their interpretation. Each individual’s situation may differ, and you should seek independent professional taxation advice on any taxation matters. While the information contained in this article may contain or be based on information obtained from sources believed to be reliable, it may not have been independently verified. Where information contained in this publication contains material provided directly by third parties it is given in good faith and has been derived from sources believed to be accurate at its issue date. It is not the intention of Heart1Stop or Heart Mortgage Services and Heart Financial Advisers that this publication be used as the primary source of readers’ information but as an adjunct to their own resources and training. To the maximum extent permitted by law: no guarantee, representation or warranty is given that any information or advice in this publication is complete, accurate, up to date or fit for any purpose; and no party of Heart1Stop or associated entities as mentioned is in any way liable to you (including for negligence) in respect of any reliance upon such information. This article may also contain links to websites operated by third parties ("Third Parties") who are not related to Heart1Stop. These links are provided for convenience only and do not represent any endorsement or approval by us.

33 views0 comments

Recent Posts

See All
bottom of page