It is my pleasure to be here today to talk with you about the Government’s Budget and to give my overview of the Coalition’s 11th successive Economic Plan.
I think it’s fair to say that each year, our Budget provides an assessment of where our nation ‘is’, how it has been travelling and just as importantly, where the nation is headed.
You all understand the concept of compounding – that is, the notion of building from a solid base. This 11th Costello Budget builds strongly upon the already significant measures taken previously.
I think this is an important point to reiterate.
Historically, Budgets have regrettably tended to be viewed in isolation – one Budget at a time.
As a Government, what we have been doing in a very strategic and systemic way, is to deliver yearly Budgets that complement and build upon our previous Budgets – thereby creating a solid foundation for our future over the long-term.
As a result, this Budget should be viewed as a piece in a much larger, if you like, economic mural – an ever-changing economic mural.
We are proud of where we are, but most importantly, how we have been able to achieve this.
I well remember the days of 17 per cent home-loan interest rates, high unemployment, and business overdraft rates exceeding 20 per cent.
There is an important distinction to make in the context of the Budgets that we hand down compared to the Budgets of the previous government.
These days, as we approach the Federal Budget, some Australians have a mindset of ‘how much will I get from the Budget?’
This is a natural function of prosperity, economic growth and significant planning for the future.
In contrast, under the previous Government and importantly, under current State Governments, the mindset is one of ‘how much am I going to be slugged this time around?’
Our position has always been: if it’s affordable, sustainable and sensible, then we should always attempt to return benefits to hard-working Australians.
So let’s take a look at this year’s Budget.
The future of our economy continues to reflect the Government’s commitment to strong, sustainable growth in the Budget and builds on this commitment.
The Budget delivers significant investment in families and older Australians….health research and innovation… national security…roads and infrastructure.
It also contains historic personal, superannuation and business tax reforms.
A new Comprehensive Tax Plan
The Government’s new comprehensive tax plan contains three parts:
- the most significant change in 20 years to simplify and streamline superannuation;
- another instalment of income tax reform; and
- a major improvement in business tax.
Superannuation
On Tuesday, the Treasurer announced a plan to sweep away the current raft of complexity faced by retirees…to increase retirement incomes…to give greater flexibility as to how and when superannuation can be drawn down…and to improve incentives for older Australians to stay in the workforce.
From 1 July 2007, Australians aged 60 or over will be exempt from any tax on their end benefits where these are paid from a taxed superannuation fund.
There will be no tax on lump sums, or superannuation pensions.
This is the most direct way of cutting through the complexity of the current system. And as you may know, this is the one area in my own portfolio that is my number one priority – we need to move towards achieving A Simpler Regulatory System.
Reasonable benefit limits and age-based limits will be abolished.
Instead, a simple universal contribution limit of $50,000 per annum will apply.
Australians will not be forced to draw down on their superannuation and the self-employed will be eligible for the Government co-contribution.
It will be easier for people to find and transfer their superannuation between funds. Together, this means we are building on enhanced participation and importantly, we are optimising efficiency.
Income Tax reform
Since 2000, the Government has been providing significant tax relief to all Australians.
On Tuesday, the Treasurer announced a further round of tax cuts worth $36.7 billion over four years.
From 1 July 2006, marginal tax rates at the upper end of the scale will be reduced.
The Government will reduce the 47 and 42 cent rates to 45 and 40 cents.
This will give Australia four marginal tax rates of 15, 30, 40 and 45 cents.
In addition, we will increase the thresholds so that the 15 cent rate will apply up to $25,000, the 30 cent rate up to $75,000, the 40 cent rate up to $150,000 and the 45 cent rate will apply to income above that.
It is important to emphasise that six years ago the threshold for the top marginal tax rate was $50,000 - had it been indexed, today it would stand at about $64,000.
Instead, by 1 July this year, the threshold for the top marginal tax rate will be $150,000. And this new lower top marginal rate will affect just 2 per cent of taxpayers.
Across the forward estimates more than 80 per cent of taxpayers will continue to have a top marginal tax rate of 30 cents or less.
The Low Income Tax Offset will increase from $235 to $600.
This means a low income earner will not pay tax until their annual income exceeds $10,000.
These changes and the change to the 30 per cent threshold will provide more incentive for those outside the workforce to re-enter it and those on part-time work to take additional hours.
They will also make the tax system more competitive and bring Australia's upper income tax rates into line with OECD averages.
Business Tax Reform
The recent International Comparison of Australia’s taxes showed that our company tax rate — which this Government cut to 30 per cent — is internationally competitive, but that Australia had the equal lowest value of depreciation allowances in comparator countries.
The Government will bring our arrangements into line with other OECD nations, by moving to a 200 per cent diminishing value rate on eligible business assets acquired from the 9th of May onward.
This cuts business taxes by $3.7 billion over four years and encourages business to undertake new investment.
We will also cut taxes on small business by $435 million over four years to reduce compliance costs and to align eligibility thresholds across small business tax relief arrangements.
This Budget simplifies and extends access to the small business capital gains tax concessions.
The Government will also implement measures to protect the integrity of the tax system and recover revenue of $2.3 billion over the next four years.
This includes increasing resources for the ATO’s High Wealth Individuals Taskforce and funding Operation Wickenby to continue to crack down on international tax evasion.
If you would allow me the opportunity, I thought you may be interested in some of the ‘wins’ in the Treasury portfolio out of this Budget…..
PST portfolio funding measures
I am pleased that we secured more than $800 million in funding for agencies within the Treasury. Including:
- $414 million for the Australian Bureau of Statistics;
- more than $105 million for the Australian Competition and Consumer Commission, including $25.4 million for the implementation of criminal cartel enforcement;
- over $265 million for ASIC; including a $234.6 million boost over four years;
- $28.5 million for the Productivity Commission;
- $1.1 million for the Corporations and Markets Advisory Committee; and
- $11 million to the Royal Australian Mint.
I strongly support these agencies as they all play critical roles in supporting the Australian economy and facilitating an open and transparent market.
I would now like to move to a critical focus in this Budget…families.
Families
A fundamental part of our welfare system is the assistance that we provide to families.
As part of this Budget, the amount families will be able to earn without having their entitlement reduced under Family Tax Benefit A will be increased by 19% from $33,361 to $40,000.
This will provide additional assistance to almost half a million Australian families.
The Government will also remove the limit on the number of subsidised outside school hours care and family day care places.
Put simply, there will be no limit on funded places.
It is estimated that this will generate an additional 25,000 places by 2009.
In addition to facilitating more financial support to families, we also need to ensure future generations have strong and sustainable communities – a central part of this strength is….
Infrastructure
The Government will invest even more in Australia’s infrastructure.
Infrastructure underpins our future prosperity and is critical for enhancing productivity.
An additional $2.3 billion will be invested in the Auslink programme.
The largest allocation, of $800 million, will go to accelerate the duplication of the Hume Highway, between Melbourne and Sydney.
An additional $307.5 million will also be provided to Local Councils under the Roads to Recovery programme.
A key aspect of our infrastructure plan is addressing the interface with our natural water resources. The Government will also inject $500 million into the Murray-Darling Basin Commission. This money will be used to enhance water conservation.
Building on previous Budgets we continue to invest heavily in…
Health, Research & Innovation
In 2006-07 alone, the Government will spend $48 billion on health and aged care – this compares to only $20 billion when we came into office in 1996.
There will be increased investment in the National Health and Medical Research Council, taking the base funding to over $700 million per annum by 2009-2010.
The Government will also provide a five year $1.9 billion Mental Health package.
$200 million will be set aside to establish a new round of the Innovation Investment Fund programme.
And a new investment vehicle — the Early Stage Venture Capital Limited Partnership — will also be introduced.
However, our first priority as Government, is and will remain, the defence and security of this nation and her people.
National Security
The Government has provided for three per cent real growth in funding for our defence force planning between 2011-12 and 2015-16.
The Government will provide $802 million over the five years to 2009-10 to strengthen Australia's intelligence capabilities.
This includes taking the workforce of ASIO from 1200 to 1800 people. They will have greater capacity to recruit and train the most sophisticated intelligence service possible.
Economic Outlook
Australia’s strong economic performance is set to continue.
Unemployment is expected to remain around its current level — a 30 year low.
Inflation should remain contained.
A significant factor to emphasise, is that Australia is now also net-debt free. This means that instead of paying $8 billion in interest payments, we now have $8 billion more to allocate to important programs and services for all Australians.
GDP is forecast to grow by 3.25% during the next financial year.
Since 1996, Australia has had continuous real economic growth averaging 3.5 per cent per annum.
For the first time in our history the Australian economy will grow next year to $1 trillion.
Conclusion
In conclusion, this Budget is about our future. Australia’s successful economic performance over the last decade provides a strong basis for our future national prosperity.
This Budget delivers: personal, business and superannuation tax reform...investments in infrastructure… it bolsters defence and most importantly, supports families.
I believe strongly that these are the right decisions, the right funding allocations and the right plans to ensure our sustained prosperity and future opportunities for all Australians.