The 2017 federal budget indicates the national accounts should achieve a surplus of $7.4 billion in 2020/21.
This financial year, the deficit is expected to drop from $39.9 billion to $37.1 billion – which is equivalent to 2.2 per cent of the economy. The deficit is also forecasted to be $29.4 billion in the 2017/18 financial year, and again dropping to $6 billion by the 2019/20 financial year.
According to the budget papers, the federal government is now extending cuts to the company tax rate first offered to the small business sector to medium-sized businesses.
Federal Treasurer Scott Morrison said the government would “continue to step up the turnover threshold for access to the lower company tax rate of 27.5 per cent for more businesses, from $10 million to $25 million in 2017/18 to $50 million in 2018/19 and $100 million in 2019/20.”
He also announced $75 billion in infrastructure funding and financing over the next ten years.
The centrepiece of this program is a $5.3 billion equity commitment to establish the Western Sydney Airport Corporation. The body will be charged with developing the new Western Sydney Airport at Badgerys Creek.
The project, which is scheduled to be completed by 2026, is forecast to create 60,000 jobs long term.
Another significant announcement concerned the Snowy Hydro project. Mr. Morrison said, “The Commonwealth is open to acquiring a larger share or outright ownership of Snowy Hydro, from the NSW and Victorian state governments, subject to some sensible conditions.”
In exchange, the federal government expects the two state governments to reinvest funds received through the sale of Snowy Hydro in what the Treasurer called, “priority infrastructure projects.”
“It is important to invest in infrastructure, but we have to make the right choices on projects, as part of a broader economic growth strategy,” Mr Morrison said.
The plan also included detail about the federal government’s plans to fund the proposed 1,700 kilometre Melbourne to Brisbane Inland Rail project.
The papers note the Australian Rail Track Corporation will receive $8.4 billion in equity to start construction of the project.
Work will start in the 2017/18 financial year. It is expected the scheme will create 16,000 jobs at its peak.
“It will benefit not just Melbourne and Brisbane, but all the regions along its route,” Treasurer Morrison told parliament when announcing the budget.
Additionally, the government has committed $1.6 billion in infrastructure funding to hospitals in Western Australia.
As the budget indicates, the Coalition has tackled the housing affordability issue by funding a new National Housing Finance and Investment Corporation to help more people access affordable rental housing.
Impacts for CFOs
Some experts expect the investment in infrastructure will create a lift to national productivity rates.
This in turn should help drive economic growth, creating a stable economic outlook for CFOs in the near term.
Greg Goodsell, global equities analyst for 4D Infrastructure, said a major project like the new Badgerys Creek airport should be a positive for business productivity, especially in terms of air freight services.
“Not only will the new airport be an important new export hub, conveniently located in Western Sydney, but it will also provide competition for Sydney Airport, which has a monopoly position on international air freight export from Sydney,” says Goodsell. “A direct competitor to Sydney Airport is good for cost competitiveness and improving business productivity.”
Goodsell says the Inland Rail Project is likely to have a huge impact on the regions it touches because it will provide a new, close and cost-effective gateway to market for goods produced in those regions.
“Consider the position of a small manufacturer located in Parkes, New South Wales. Currently it would have to transport product to an already congested hub in Sydney for forwarding either interstate or overseas.
“With the inland rail, it will have the option of sending freight to multiple destinations for distribution and export. Not only will it be able to choose the most cost-effective destination, but also major hubs like Sydney will need to compete for that business. It would be expected a project like the inland rail will see new business regions develop and evolve along the route, which will be great for regional employment,” he adds.
According to Goodsell, the new infrastructure programs announced at the budget are primarily about rail and road infrastructure spend.
“Any sensible infrastructure investment, particularly in road or rail, is going to be good for business productivity as it improves the essential ‘arteries’ of the economy, allowing business, and the economy more generally, to operate more smoothly, efficiently and productively,” he explains.
The 2016/2017 budget papers reveal real GDP growth is forecast to grow to 2.75 per cent in the 2017/18 financial year, rising to 3 per cent in the 2018/19 financial year.
The government has attributed rising real GDP numbers to a reduction in the drag on economic growth caused by the slowdown in mining investment. A lift in household consumption and exports is also expected to contribute to economic growth, according to the budget papers.
The federal government anticipates investment in the non-mining sector will also contribute to the higher GDP figure.
As the budget papers note, “accommodative monetary policy, a lower exchange rate and a flexible labour market are all helping to facilitate the economic adjustment that has been underway for some time following the peak of the investment phase of the mining boom.”
- Budget surplus forecast for 2020/2021
- Tax cuts to be extended to medium-sized businesses
- Extensive infrastructure program announced