Commonwealth 2010-11 Budget Overview

Federal Budget 2010-11

The Federal Budget 2010-11 is the third delivered by the Rudd Government and by the Treasurer, the Hon. Wayne Swan MP. Australia’s economic landscape has changed significantly since the 2009-10 Budget which was handed down while the repercussions from the global economic downturn were still unfolding. The 2010-11 Budget demonstrates Australia’s success in steering a way through the global financial crisis and the economy’s growing strength. However, international instability is still present, and responsible economic management is at the heart of the 2010-11 Budget.
Key Initiatives
·       Primary Care
·       Skills and Training
·       Renewables and Energy Efficiency
·       Infrastructure
·       Superannuation
·       Taxation
·       Defence and border protection
Treasurer’s Budget Speech
The Treasurer emphasised the resilience of the Australian economy.  Mr Swan highlighted how the success of the Government’s stimulus spending, sound monetary policy, a well-supervised banking system and close ties with Asia, and how these factors had contributed to forecast growth rates of 3.25% in 2010-11 and 4 % in 2011-12.
This strong fiscal position has put the Government in a position to invest in health, infrastructure and renewable energy and to bring the Budget back to surplus earlier than previously forecast.
Mr Swan also noted that “every dollar of spending has been offset”, meaning all the new initiatives have been funded through savings/revenue measures.

Economic context
·         Growth of 3.24% in 2010-11 and 4% in 2011-12.
·         Unemployment at 5% in 2010-11 and 4.75% in 2011-12.
·         Deficit at $40.8 billion in 2010-11 and $13.0 billion in 2011-12, returning to surplus in 2012-13.
Since the 2009/2010 Budget, the Australian economy has performed better than expected, and has maintained a strong position relative to other economies. Australia’s economy continued to grow despite the global recession, and was the only advanced economy that recorded growth – of just 0.6% – through to June 2009.  Forecasts for the Australian economy have been revised up since the Mid-Year Economic and Fiscal Outlook (MYEFO) in November 2009, with growth projected at 3.25%.
Major economic parameters
2009-10 Forecast
2010-11 Forecast
2011-12 Forecast
2012-13 Projection
2013-14 Projection
Real GDP Growth
Employment Growth
Unemployment Rate
Nominal GDP Growth
The Deficit
·         The forecast in the 2010-11 Budget for the underlying cash deficit in 2010-11 is $40.8 billion.
2009-10 Estimates
2010-11 Estimates
2011-12 Forecast
2012-13 Projection
2013-14 Projection
Underlying cash balance
-$57.1 billion
-$40.8 billion
-$13.0 billion
$1 billion
$5.4 billion
The Budget has been in deficit since 2009-10 as a consequence of the Global Financial Crisis and the resulting decline in tax receipts, as well as the Government’s economic stimulus initiatives.
According to the Budget, the deficit for the current 2009-10 financial year will be little changed on the previous forecast – $57.1 billion compared to $57.7 billion forecast in November 2009.
However, the deficit is forecast to reduce substantially over the forward estimates to $40.8 billion in 2010-11, $13 billion in 2011-12, returning t surplus in 2012-13.
This is a substantial improvement since the MYEFO forecast in November 2009 where the deficit stood at $57.7 billion and was forecast to return to surplus in 2015-16.
Key themes – 2010 Budget
Responsible economic management
The 2010-11 Budget has been described as “no frills”, “disciplined” and “austere”.  The Treasurer has described the Budget as a budget for the medium to long term, with an emphasis on savings and planning for a return to surplus in 2012-13.
As part of the Government’s plan to return the Budget to surplus, the Government last year introduced a cap on real spending growth of 2 per cent for the years the economy is projected to grow at above-trend rates. The 2010-11 Budget has been formulated accordingly, and all the investments in the Budget are fully offset.
Health reform
Primary Care and GP Services
The Government has announced further measures relating to primary care and GP services, which will be funded solely by the Commonwealth Government under the Health and Hospitals Network agreement.
The 2010-11 Budget delivers a further $2.2 billion package of investments, including:
·         $417 million investment to improve after-hours access to GP and primary care services , supported by a new initiative, ‘Medicare Locals’ to be established across the country.
·         $355 million to deliver 23 new GP Super Clinics across Australia and upgrade around 425 GP and primary health clinics.
·         $523 million investment in training and support for nurses.
·         $467 to implement an electronic health records system across Australia from 1 July 2012.
·         $533 million over five years to improve access to aged care.
Health and Hospitals Network
The Primary Care and GP Services measures outlined above compliment the other health reform measures the Government has already announced in 2010.
On 20 April 2010, the State and Territory (State) Governments (except Western Australia) reached an historic agreement to reform the way health and hospitals are funded. The Commonwealth Government will retain one third of GST revenue, and will take on 60 per cent of funding responsibility for public hospitals and 100 per cent of funding responsibility for primary care and aged care.
For hospitals, the Commonwealth Government (60%) and State Government (40%) portions will be pooled into a ‘National Hospitals Fund’, and the Commonwealth Government will allocate money to a payment authority in each State. The payment authorities will then deliver the funds to the local hospital networks directly. Performance benchmarks and indicators will ensure hospitals are remunerated for the services they deliver (activity-based funding).
Diabetes Voluntary Enrolment Program
The Government had already announced an investment of $436 million in coordinated care for people living with diabetes so that people with diabetes can be offered the option of signing up with a general practice of their choice.
The practice will become responsible for managing their care, including and be paid, in part, on the basis of their performance in keeping patients out of the hospital system.
Tax Reform/Cuts[1]
Resources Super Profits Tax
The Government will introduce the Resources Super Profits Tax (RSPT), which is essentially a 40 per cent tax on above normal return on capital investments of Australia’s non-renewable resources. The tax is expected to generate $12 billion over the forward estimates.  Much of the revenue will be channeled into new state infrastructure funds ($700 million in 2012-13, $5.6 billion over ten years), a 30 per cent Resource Exploration Rebate ($1.1 billion), and funding the superannuation and company/small business tax cuts outlined below.
Company and Small Business tax
The Government will decrease the company tax rate to 29 per cent in 2013-14 and to 28 per cent in 2014-15. Further decreases may be considered as revenue allows.  The Government will bring forward the tax cuts for small businesses to 2012-13.
The Government will also introduce a new instant write-off for assets worth up to $5,000 for small businesses and will deliver simpler depreciation arrangements for other assets.
Tax Cuts
From 1 July 2012, people will be able to choose to claim a standard $500 deduction instead of claiming work-related expenses and the cost of managing their tax affairs. This will increase to $1,000 from 1 July 2013.
From 1 July 2011, people will be able to claim a 50% tax discount on their interest income for up to $1,000 of income per year.
GST and other Corporate Measures
The Government announced a raft of new measures to amend the Capital Gains Tax (CGT) provisions.
The Government announced in the Budget it will:
  • extend the CGT rollover for the conversion of a body to an incorporated company;
  • make the share sale facility exclusion more broadly available for CGT rollovers; and
  • allow CGT demerger relief for certain demerger groups that currently cannot access the relief.
The Government has also announced it will seek to increase competition in business lending with reforms to make it easier for businesses to borrow directly from retail investors and reduce their reliance on borrowing from banks.
The Australian Securities and Investments Commission (ASIC) will allow listed entities to issue bonds to retail investors using a simplified process, while maintaining a strong level of investor protection.
Businesses will only be able to use the new streamlined process on the following strict conditions, including that the size of the bond offer is at least $50 million.
The Government will allow non-major banks to access cheaper funding so they can offer cheaper loans to Australian households and businesses.
The Government will phase down the Interest Withholding Tax (IWT) incurred by local subsidiaries and branches when they pay interest on borrowings from their overseas parents.
For local subsidiaries of overseas parents, the IWT rate will be reduced on such borrowings from 10 per cent to 7.5 per cent in 2013-14 and to 5 per cent in 2014-15. The Government is favourably disposed to reducing this rate to zero, subject to its medium-term fiscal objectives.
Additionally, the IWT rate applying to borrowings by any bank branch from its overseas head office will be reduced from 5 per cent to 2.5 percent in 2013-14 and to zero in 2014-15.
The Government expects this reform will allow such bank branches to continue their active lending to Australian businesses, including infrastructure investors, at even more competitive interest rates.
Small business taxes, GST for small business and other small business measures
The Government will reduce compliance costs for businesses through a package of GST reform measures to help business owners spend less time negotiating red tape.
The key components of the plan are:
  • restructuring the margin scheme provisions to clarify and simplify the rules and ensure greater certainty for taxpayers on issues surrounding the use of valuations;
  • significantly increasing the threshold above which businesses need to interact with the financial supply provisions from $50,000 to $150,000 of input tax credits delivering compliance savings for many more small businesses;
  • introducing measures to protect the GST base by reducing opportunities for businesses to inappropriately take advantage of the reduced input tax credit concessions by bundling services; and
  • allowing small businesses accounting for GST on a cash basis to claim input tax credits upfront in relation to hire purchase arrangements. This change will significantly assist those businesses that have been forced into higher cost chattel mortgages following the introduction of the GST.
In response to the Treasury’s review of the GST margin scheme, the Government also announced:
·         The financial acquisitions threshold (FAT) input tax credit test will be increased from $50,000 to $150,000, enabling many more small businesses to avoid being caught up in the financial supply regime.
·         The treatment of hire purchase agreements will be simplified by removing the need to apply different GST treatments to different parts of the one supply.
·         The attribution rules for hire purchase arrangements will be made the same for both cash and non-cash GST taxpayers. This change should significantly advantage small businesses operating on a cash basis that have been forced into higher cost chattel mortgages following the introduction of the GST.
The Government will amend income tax laws to improve the operation of the rules relating to the calculation and collection of income tax liabilities from consolidated groups and multiple entry consolidated groups (MEC groups).
The measure will allow an entity in a tax sharing agreement to leave a consolidated group or MEC group clear of any future income tax liabilities relating to the group.
For consolidated groups and MEC groups, the changes will clarify that:
·         Pay-As-You-Go (PAYG) liabilities can be recovered under the liability for payment rules in the income tax law, with effect from today; and
·         an entity which pays its contribution amount under a tax sharing agreement can leave a group clear of any further liability, with effect from the 2004-05 income year.
Additional changes for MEC groups will ensure that:
·         the liability for payment rules apply to those groups, with effect from today; and
·         where there is a change in the provisional head company during an income year, any PAYG instalments paid by the former provisional head company on behalf of the group are attributed to the group, with effect from 1 July 2002.
Meanwhile, the Government will provide $89.9 million over four years to support the continuation and operation of the Standard Business Reporting (SBR) program to streamline business to government reporting.
Previous Tax Cuts
The following previously legislated tax cuts will come into operation from 1 July 2010, increasing taxation revenue by approximately $4 billion over the next three years:
·         Limiting the tax exemption for Australians working overseas.
·         Tax File Number (TFN) withholding for trusts.
·         Tightening the non-commercial losses rules.
·         Tightening the non-commercial loan rules.
·         Employee share schemes.
Tobacco Tax
The Government has also already implemented a 25% increase to the Tobacco Tax, effective from 30 April 2010.   This is expected to generate an additional $5 billion in revenue over four years, which the Government will invest in health and hospitals reform. 
State Infrastructure Fund
As part of the Government’s response to the Henry Tax Review, the Government announced a new State Infrastructure Fund. The Government will make annual contributions starting at $700 million from 2012-13 ($5.6 billion over ten years).
Australian Rail Track Corporation (ARTC)
The Government will provide the ARTC with $1 billion in equity to implement a package of freight works projects.
National Broadband Network
The Government has made appropriate provisions in the Budget for the roll-out of the NBN, subject to a final and detailed response to the Implementation Study.
The Government had also already announced a suite of measures relating to superannuation that appear in the 2010-11 Budget; an overall investment of $2.385 billion over the next four years.
·         The Government will increase the Superannuation Guarantee (SG) from 9 per cent to 12 per cent by 2020, beginning with a 0.25% increase in 2011-12.
·         The Government will contribute up to $500 annually into the superannuation account for workers on taxable incomes of up to $37,000. This measure is essentially a refund on tax contributions on superannuation for low income earners. This represents an investment of $830 million over the forward estimates.
·         The Government will increase the concessional contribution cap for those aged over 50. From 1 July 2012, workers aged 50 and over with superannuation balances below $500,000 will be able to make up to $50,000 in annual, concessional superannuation contributions.
·         The Government will raise the superannuation guarantee age limit from 70 to 75 from 1 July 2013 which will mean that workers aged 70 to 74 will be eligible to have superannuation guarantee contributions made on their behalf.  
Renewable Energy
The Government announced it will invest $652 million over four years in a new Renewable Energy Future Fund, which will provide investment for large and small scale Renewable Energy Projects, including wind, solar and biomass.
The announcement will provide funding through partnerships with the private sector to support critical early stage investments to leverage private funds for the commercialisation of renewable technologies.
In addition, the Fund will be used to promote the take-up of energy efficiency in Australia and help businesses and households reduce their energy consumption.
The Fund will form part of the Government’s expanded $5.1 billion Clean Energy Initiative. Further details of the specific commitments under the Fund will be announced in the immediate future. 
Skills and Training
The Government will make a $661 million investment in skills and training, including;
·         $299.5 million over four years to respond to immediate capacity constraints;
·         $242.5 million over four years to support participation in training.
·         $119.2 million towards building language, literacy and numeracy skills. 
Defence and Border Security
The Government will invest $1.2 billion to strengthen border and aviation security.
This will include increased funding of $1.3 billion over the forward estimates for Overseas Development Assistance.
Hawker Britton will provide further Budget updates over the coming days available at

[1] The following technical information has been sourced from CCH Budget Report, 2010-11