Budget priorities

Jobs, growth and productivity

Productivity has always been an important driver of Australia's economic growth and standards of living. In recent years however, Australia's standard of living has been boosted by an increase in the terms of trade which peaked in 2011.

With the decline in the terms of trade from its 2011 peak and downward pressure on workforce participation due to the ageing of the population, Australia must significantly improve its productivity performance if it is to match the growth in living standards Australians have enjoyed over the past 30 years.

This would require a sustained lift in annual labour productivity growth from 1.6 per cent to 2.4 per cent. Such an improvement would be greater than Australia's productivity performance achieved following the major economic reforms of the 1980s and 1990s.

Policies that encourage firms to innovate or adopt world leading processes or practices will allow them to produce more with the same amount of effort. As a net importer of technology and innovations, the pace of global innovation and Australia's ability to absorb technological advances from abroad will be important to future productivity performance.

The Government's national innovation and science agenda supports science and research, incentivises investment in innovation and encourages collaboration between researchers and businesses.

Trade agreements and competition reforms facilitate the movement of existing resources across the economy from lower value activities to higher value activities, helping prepare Australians for the high‑wage jobs of tomorrow.

The Government is building on its national plan for economic growth and jobs through a range of policies such as:

• a ten year enterprise tax plan that is expected to boost investment, making Australia more competitive and supporting more jobs, higher wages and improved living standards, permanently expanding the economy by just over one per cent over the long term, with the long-term benefits accruing to Australian workers;
• superannuation changes that better target tax concessions to encourage people to save for retirement and that increase the focus on helping the people who need them the most;
• investing in young working‑age people by helping more than 100,000 vulnerable young people into jobs in the growing Australian economy by giving them real work experience with real employers that leads to real jobs;
• investing in quality infrastructure to drive greater private investment by providing businesses with the necessary platform to grow;
• securing an advanced local defence manufacturing industry through the twenty year defence industry plan; driving new high‑tech jobs in Australia, including 3,600 direct jobs as part of the Government's naval shipbuilding programme and making significant investments in Defence capability and cyber security; and
• supporting hospitals and schools with affordable funding increases to continue delivering important services to the community, increasing the investment in human capital.

A ten year enterprise tax plan to support growth and jobs

The Government is introducing a $9.2 billion package of reforms across company tax and small business, personal income tax and indirect tax.

The Government's ten year enterprise tax plan will promote growth and employment outcomes by:

• Delivering tax cuts for companies that will boost investment, make Australia more competitive and are expected to permanently expand the economy by just over one per cent over the long term, leading to more job opportunities, more secure jobs and higher real wages.
• Ensuring the first benefits of the tax cuts flow to small businesses when the company tax rate applicable to companies with annual turnover less than $2 million is lowered from 28.5 per cent to 27.5 per cent in the 2016‑17 income year. So that small businesses are encouraged to grow, this lower rate will apply to businesses with turnover between $2 million and $10 million from 2016‑17 and the threshold will then be progressively extended to all companies by 2023‑24. These tax cuts will continue to drive growth and improved international competiveness through further annual reductions until the tax rate for all companies reaches 25 per cent by 2026‑27.
• Further supporting small businesses to expand and create jobs by increasing the small business turnover threshold from $2 million to less than $10 million per annum, enabling them to gain access to a number of the small business concessions such as accelerated depreciation provisions and simplified trading stock rules. Over 90,000 businesses will gain access to the concessions from this change.
• Making sure assistance is available for all small businesses by increasing the unincorporated tax discount in the 2016‑17 income year from 5 per cent to 8 per cent for unincorporated businesses with annual turnover less than $5 million, capped at $1,000. The tax discount will be further increased to 16 per cent in stages by 2026‑27.

Improving tax system integrity

The Government will strengthen the integrity of the tax system and target tax avoidance by multinational corporations, including by:

• introducing a new Diverted Profits Tax to prevent multinationals shifting profits made in Australia offshore to avoid paying tax;
• preventing multinational corporations from exploiting differences in the tax laws of two or more jurisdictions to defer or avoid paying tax;
• updating Australia's transfer pricing rules to align with the latest international guidelines;
• establishing a new Tax Avoidance Taskforce that will strengthen the ATO's audit and compliance activities targeting corporates and high wealth individuals;
• improving protections for whistleblowers that provide information on tax avoidance to the ATO; and
• progressing mandatory disclosure rules to uncover aggressive tax planning schemes.

In addition, the ten year enterprise tax plan is a responsible first step in alleviating the tax burden on average full‑time income earners. It will extend the 32.5 per cent marginal tax rate to individuals with taxable income up to $87,000. Increasing this threshold from $80,000 will help prevent taxpayers on average full‑time earnings from moving into the second highest tax bracket until 2019‑20. This will stop around 500,000 taxpayers facing the 37 per cent marginal tax rate. This is expected to benefit 3.1 million taxpayers and represents a down payment on future tax cuts to be delivered as the budget position allows.

A superannuation system that is sustainable, flexible and has integrity

The objective for superannuation, which will be enshrined in legislation as recommended by the Murray Financial System Inquiry, is to provide income in retirement to substitute or supplement the Age Pension.

With this objective in mind, the Government is improving the sustainability, flexibility and integrity of the superannuation system while ensuring that 96 per cent of Australians with superannuation are not adversely affected.

The Government is better targeting tax concessions to ensure that the superannuation system is sustainable and equitable by:

• introducing a $1.6 million cap on the total amount of superannuation that can be transferred into retirement phase accounts;
• requiring those with incomes (including superannuation) greater than $250,000 to pay 30 per cent tax on their concessional contributions, up from 15 per cent, consistent with current treatment for people with incomes over $300,000;
• lowering the concessional contribution caps so that individuals can contribute up to $25,000 per annum pre‑tax to superannuation;
• introducing a lifetime cap of $500,000 on the non‑concessional contributions that can be made to superannuation; and
• introducing a Low Income Superannuation Tax Offset to replace the Low Income Superannuation Contribution when it ends on 30 June 2017, to effectively reduce the tax rate on superannuation contributions to zero for low income earners.

Recognising that individuals have different work patterns across their lives, the Government will also improve the flexibility of the superannuation system by:

• allowing all Australians (under age 75) to claim a tax deduction for personal superannuation contributions made to an eligible fund, irrespective of their employment arrangements;
• allowing the rollover of unused concessional caps, for individuals with superannuation balances less than $500,000, to allow those with interrupted work arrangements to make 'catch‑up' superannuation contributions;
• encouraging partners to make contributions to their low‑income spouses' superannuation by extending the eligibility for individuals to claim a tax offset for these contributions; and
• removing the current regulations that restrict people aged 65 to 74 from making contributions to their superannuation. This will assist those who are no longer working to top up their retirement savings from sources not necessarily available to them before retirement.

The superannuation changes will improve the integrity of the superannuation system by reducing the extent to which it is used for tax minimisation and estate planning purposes. The introduction of the $1.6 million limit on the amount that can be transferred into retirement phase accounts and the $500,000 lifetime non‑concessional cap are key elements in improving confidence that the system is being used for its core purpose.

The Government will further improve the integrity of the superannuation system by:

• ensuring that the transition to retirement income stream scheme is fit‑for‑purpose, is not accessed primarily for its tax benefits, and still meets the objective of supporting people who want to remain in the workforce; and
• removing the out‑dated anti‑detriment provision.

Youth Jobs PaTH Programme

Ensuring young people are maximising their potential and taking advantage of employment opportunities as the economy diversifies is key to supporting strong economic growth in the future. Welfare costs can be reduced by helping people transition from welfare to work as early as possible. Supporting more young people into work will improve their wellbeing while also helping to reduce the social costs of long‑term welfare dependency. For example, if a person stays on a Newstart or Youth Allowance (Other) payment for two years, on average they will remain on a working‑age payment for another five to six years.

The Budget will introduce a new, innovative Youth Employment Package to put more than 100,000 vulnerable young people on a pathway to work.

The new package responds directly to business feedback that more needs to be done to increase young people's employability and to provide them with real work experience.

This major investment will help young people become more competitive in the labour market by giving them the skills that employers want, opportunities for work experience and the support to move from welfare to work.

The key component of the package is the $752 million Youth Jobs PaTH (Prepare‑Trial‑Hire) Programme for job seekers under 25 years of age.

The first stage of the pathway is intensive pre‑employment skills training, which will be co‑designed with a range of employers to help prepare young job seekers for the workplace by providing them with the basic employability skills they need.

Stage two is an internship placement that links young people with businesses, providing valuable work experience and allowing them to trial the job seeker's fit in the workplace. This stage will provide more than 100,000 job seekers over four years a four to twelve week placement in an industry of their choosing. Both businesses and job seekers will receive a financial incentive to participate. Job seekers will receive an additional $200 per fortnight on top of their regular income support payment while they complete the internship, and businesses that host a placement will receive a one‑off payment of $1,000.

At stage three of the pathway, employers who hire a young job seeker in an ongoing job will receive a wage subsidy of up to $10,000, paid over six months rather than the current twelve months.

In addition, existing wage subsidies (including those for youth, parents, indigenous and mature age workers and the long‑term unemployed) will be streamlined, making them easier for employers to access, and will be paid sooner, over six months.

The Government will also provide a further $89 million to encourage young people to start their own businesses, including by expanding the successful New Enterprise Incentive Scheme (NEIS). This will assist more job seekers, including youth, by connecting them with business training, finance and networks they need to develop their innovative ideas into successful businesses.

The Government remains committed to providing more than $40 billion in child care support over the next four years to support Australian families through the Jobs for Families Child Care package announced at the 2015‑16 Budget.

To fund this child care package, the Government is restructuring Family Tax Benefit (FTB) payments to give more targeted assistance to families and encourage workforce participation. Given the uncertainty regarding the passage of the legislation enabling the FTB changes, the new Child Care Subsidy, Community Child Care Fund and the Additional Child Care Subsidy will now commence on 1 July 2018.

The Government is implementing the rest of the child care package. This includes extending the Nanny Pilot Programme to 30 June 2018 to provide assistance to more families who are having difficulty accessing mainstream child care, and allowing more time to refine the programme based on experience. The Government is also implementing the Inclusion Support Programme to provide additional care for vulnerable children commencing on 1 July 2016.

National infrastructure plan

The Government is investing a record $50 billion in infrastructure from 2013‑14 to 2019‑20. There are currently around 100 major projects under construction and approximately another 80 in the pre‑construction stage involving detailed design and planning works, procurement, geotechnical assessments, environmental assessments and land clearing.

The Government is committing to the Melbourne to Brisbane Inland Rail and, in this Budget, is providing $594 million in additional equity funding to the Australian Rail Track Corporation to acquire land for the Inland Rail corridor and continue pre‑construction and due diligence activities.

The Government is also committing $115 million for further preparatory activities to support the development of a Western Sydney airport at Badgerys Creek. Construction of the airport would contribute to economic development in Western Sydney.

In Western Australia, $490 million is being provided for the Forrestfield‑Airport Link and $261 million for Section 2 of the Perth Freight Link.

The $1.5 billion in funding that was previously paid to Victoria for construction of the East West Link road project will be reallocated to essential Victorian infrastructure, including:

• $500 million to upgrade the Monash Freeway;
• a further $350 million to upgrade the M80 Ring Road;
• $220 million to upgrade the Murray Basin Freight Rail network;
• $345 million to upgrade rural and regional roads; and
• $75 million for projects to relieve congestion in urban areas.

This funding is conditional on matched funding by the Victorian Government, projects with a Commonwealth contribution of more than $100 million being assessed by Infrastructure Australia and projects demonstrating positive economic benefits.

The Government is also extending the successful Roads to Recovery, Black Spot, Heavy Vehicle Safety and Productivity, Bridges Renewal and National Network Maintenance and Research and Evaluation programmes from 2019‑20 at an annual cost of $920 million.

These measures build on the Government's existing investments in major infrastructure projects, including $5.6 billion for a Pacific Highway upgrade in NSW; $6.7 billion for a Bruce Highway upgrade in Queensland; $1.7 billion for the Adelaide North South Road Corridor; $925 million for Section 1 of the Perth Freight Link; and $400 million for a Midland Highway upgrade in Tasmania.

The Government has finalised or is close to finalising agreements under the Asset Recycling Initiative with four States and Territories worth $3.3 billion. These agreements will unlock over $23 billion in State and Territory infrastructure spending, including for the Sydney and Melbourne Metro projects.

Carefully chosen infrastructure projects enhance economic productivity and improve Australians' quality of life. Selecting the best projects is critical to ensuring the Government's investment in infrastructure delivers projects where the benefits outweigh the costs. The Government has strengthened the role of Infrastructure Australia as an advisory body to provide independent, evidence‑based advice on Australia's future infrastructure needs.

The Government has also released a set of funding and financing principles to guide the Commonwealth's approach to major infrastructure transport projects to ensure that future investment decisions are prudent and consistent with its fiscal objectives.

Defence industry

The Government remains committed to keeping Australia and Australians safe and secure and supporting Australia's defence manufacturing capability. Through the 2016 Defence White Paper, the Government is providing an additional $29.9 billion for Defence over the period to 2025‑26. This funding will allow for an unprecedented investment in Australia's defence capability of approximately $195 billion over the next decade. This includes 12 new regionally‑superior submarines, 9 future frigates and 12 offshore patrol vessels.

Increasing Defence's capability supports the Government's efforts to respond to challenges to global security and secure Australia's advanced defence manufacturing industry here in Australia, driving new high‑tech jobs for decades. This Budget provides $686 million for continued operations in Afghanistan, Iraq and the Middle East to help preserve a stable global rules‑based order.

The increased investment in defence capability will also enable us to strengthen Australia's engagement in the region, including to help combat terrorism. Australia's current National Terrorism Threat Level is probable. In light of this environment, the Government is investing $154 million over five years domestically to enhance protection for the personnel and facilities of our law enforcement agencies.

The security of Australia's interests extends to cyberspace. In line with the Government's Cyber Security Strategy, this Budget provides $195 million over four years in Australia's cyber security capability, including through partnerships between the public and private sectors, as well as helping Australian businesses develop and promote their cyber security capabilities globally.

Supporting hospitals and schools

The Government will continue to provide record levels of affordable financial assistance to State governments to support health care and schools for all Australians.

At the April 2016 Council of Australian Governments' meeting, the Commonwealth and the States signed a three year Heads of Agreement for public hospitals ahead of consideration of longer‑term arrangements. This agreement preserves important parts of the existing system, including activity‑based funding and the national efficient price.

The Commonwealth will provide an estimated additional $2.9 billion over three years for public hospital services with growth capped at 6.5 per cent a year. This additional funding links to reforms which focus on improving patient safety and the quality of services and reducing avoidable hospitalisations.

Between 2018 and 2020, the Commonwealth will also provide $1.2 billion in additional funding for government and non‑government schools. Funding will grow by 3.56 per cent each year with an allowance for changes in enrolments and will be contingent on reform efforts by the States and non‑government school sector.

These funding arrangements for hospitals and schools provide an opportunity to develop longer‑term funding arrangements and further reforms that focus on quality and sustainability into the future.

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