Some good news for small business but the Budget puts off any attempt at fiscal repair

The 2015-16 Budget announced last night contains some welcome initiatives for small business. The reduction in the tax rate for small business to 28.5% will actually impact only a few companies, so the 5% tax discount (up to a max of $1,000 per individual) for small non-incorporated businesses is perhaps a more significant measure in the small business space. The move to allow 100% offset of asset purchases up to $20,000 (for two years) could also act as a welcome stimulus for small business wanting to invest in productivity improving assets.

I will leave more in-depth analysis of the intricacies of the budget to the plethora of commentators far better qualified than me. However, looking at the budget from a purely economic basis (something that Joe Hockey patently didn’t do) there is a glaring problem. Given that tax revenues rely upon nominal growth (rather than real growth) it concerns me greatly that the budget has forecasted nominal GDP leaping from +1.5% in ’14-15 to +3.25% in ’15-16 and then +5.5% in ’16-17. The rationale behind those projections would appear to be not only a return to near-trend real GDP growth by ’16-17 but a dramatic turn around in the GDP deflator which is forecast at -1% this year but +2.25% by ’16-17.

With this forecasted/projected run of more growth years the Australian economy would enter an unprecedented run of 26 years without a recession. We must all hope that comes to pass because if it doesn’t then this budget will be exposed as a smoke and mirrors exercise with no real attempt at fiscal repair having been made. The “budget emergency” from last year has simply been kicked down the road for another year or two in the hope that a lower A$, forecasted stronger growth and lower unemployment together with income tax bracket-creep will dig the budget out of its structural hole. Even if that proves to be accurate, the long term will demand that a government (but presumably not a government in as much trouble as this one) will eventually have to make the decisions that Joe claimed to want to make last year. In the words of Jon Snow, “Winter is coming”……but not this year.

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