A tale of two debts

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The key themes ahead of the 2017 Australian Federal Budget

The lead-up to the release of the Australian Federal Budget every year in May is often a game of guesswork. Are there policy changes afoot? Will there be dramatic changes in funding to different sectors? While there are often changes on the night, here are a few things likely to be feature this year.

Housing affordability

Commentary from various Government spokespeople, in particular Treasurer Scott Morrison, has suggested housing may be a big focus in this year’s Budget. The question is what policies could the Government enact to help with housing affordability?

One idea recently floated was to allow first home buyers to access their superannuation for their deposit but given public reaction, it seems unlikely this will go ahead. Some other ideas which have appeared in the media are as follows.

  • Negative gearing: reducing the tax break to a set amount and restricting the number of investment properties it applies to.
  • The CGT discount: currently investors can access a 50% discount on capital gains tax if they sell an investment property but some suggest the Government may reduce this to 25%. (As a note, owner-occupiers who sell their homes do not pay capital gains tax on the proceeds and this is not expected to change).
  • Vacancy: taxing vacant properties to encourage owners to rent out their properties.

Changes to the Pharmaceuticals Benefits Scheme (PBS)

There are a number of rumoured initiatives expected to be included in the Budget such as:

  • Price cuts for a number of medicines
  • Compensation for pharmacists for low script volumes
  • Funding for in-pharmacy diabetes checks
  • Unfreezing Medicare rebates on bulk billed doctor visits.

Education boosts and cuts

Government ministers have unveiled a number of changes to be included in the coming budget. These include:

  • increases to university student fees and a lower income threshold on HELP debt repayments
  • a portion of funding from the Commonwealth Grant Scheme will depend on universities meeting admissions and financial transparency requirements
  • increased funding for schools with a new needs based system to direct funding across Australia
  • commissioning a new report on the education sector dubbed ‘Gonski 2.0’

Some of these measures have already been highlighted by the Government, for example, money has already been allocated to a diabetes Pharmacy Trial and the Government has made an historic five-year agreement with the pharmaceutical industry which includes price cuts to PBS medications.

While these are tipped to be key focus areas for the Budget, anything can happen on the night – and there can be surprises.

New debt classification

The Government has announced plans to separate operating debt from capital.

  • Operating debt (or spending) is that directed towards the day to day running of the country, such as essential services.
  • Capital debt (or spending) is that directed towards activity to support future growth of the country, like new infrastructure.

Separating these allows the Government to be more transparent about how they are funding activities and whether this is viewed as sensible or not. For example, in an ideal world, funding for operating debt would come from the Government’s existing pool of money (such as from taxes) whereas they might borrow money for capital debt to build new infrastructure that they hope will generate future revenue to repay their loan and provide future public growth.  Some commentators predict this announcement will mean the Government is likely to announce new infrastructure projects in the coming Budget.

Return to bt.com.au/budget on Tuesday 9 May from 8:30pm for a live report in Canberra from Bryan Ashenden, Head of Financial Literacy & Advocacy, BT Financial Group with complete reports and summaries to follow.

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This article may contain material provided by third parties derived from sources believed to be accurate at its issue date. While such material is published with necessary permission, no company in the Westpac Group accepts any responsibility for the accuracy or completeness of, or endorses any such material. Except where contrary to law, we intend by this notice to exclude liability for this material.