200809 Federal Budget

1
2008/09 Federal Budget

• Presentation for National Tourism
  AllianceSponsored by
• Economic Analysis of 2008/09 Federal Budget
  What does the Budget mean for Australia, the
  tourism industry and you?
• Chris Murphy and Dinar PrihardiniEcontech

2
Outline

• The Budget
• Australian economy
• You
• Tourism industry

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The BudgetForecasts for 2008/09

• Budget Econtech
• GDP 2 ¾ 2 ¼
• Household consumption 2 ¾ 3
• Business investment 8 ½ 1
• Exports 6 8
• Imports 9 8
• Inflation (a) 3 ¼ 2 ¾
• Unemployment (b) 4 ¾ 5
• through the year
• end of the year
• Econtech expects slower economy than Treasury.

4
The BudgetBudget Environment

• Budgetary conditions are extremely favourable.
• Terms-of-trade improvements since 2003/04 have
  contributed 33.2 bn to the 2008/09 Budget
  balance (Treasury)
• Unemployment is at a 34-year low, boosting tax
  receipts and reducing benefit payments.
• Conditions will be less favourable in the years
  ahead
• Markets expect moderation in commodity prices
  after 2008/09
• Unemployment has begun to creep up from 4
  forecast to hit 5 by this time next year
  (Econtech)
• The IGR highlighted the future blowout in health
  spending due to the ageing population
• Need to run large surpluses now to avoid deficits
  when the budget environment becomes more
  challenging.

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The BudgetFiscal and cash balance (bn)
08/09 09/10 1. Fiscal balance starting
point 33.1 36.3 2. Policy measures (budget and
prior) 9.9 13.9 3. Fiscal balance end
point 23.1 22.4 4. Cash balance 21.7 19.7 So
major fiscal stimulus since last years budget.
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The BudgetPolicy measures (bn)
08/09 09/10 up to PEFO 10.8
13.7 after PEFO 0.9 0.2 revenue 2.4 4.1 expen
diture 1.5 4.3 Impact on balance 9.9
13.9 Up to PEFO the main measure is the Coalition
tax cuts. After PEFO the net saving of 0.9 bn
includes the gross saving of 7.1 bn referred to
in the Budget Speech.
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The BudgetNew Govt Policy measures (bn)

• 08/09 09/10
• Defer cut in top tax rate (45 to 42) 0.0 1.1
• RTDs (alcopops) tax increase 0.6 0.7
• Excise on crude oil condensate 0.6 0.6
• Education tax refund 1.0 1.1
• Computers in schools 0.4 0.3
• Efficiency dividend 0.4 0.4
• Net effect of other measures 0.7 1.6
• total 0.9 0.2

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The BudgetThe Fiscal Stimulus (bn)

• Policy measures reduce budget balance by 9.9 bn
  in 08/09, with a major contribution of 7.1 bn
  from personal income tax cuts.
• But the favourable Budget environment means that
  the Fiscal Balance will rise by 2.7 bn in 08/09,
  despite the major fiscal stimulus.
• The personal income tax cuts will provide a
  significant boost to household consumption.
• However, this stimulus to growth will be
  out-weighed by the spillover effects of the US
  financial crisis

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The BudgetTax Review Announced

• The Tax Review is a very welcome initiative
• To cover Australian Government and State
  Government taxes and to report by the end of 2009
• GST excluded from the Review
• Previous Government replaced sales tax with a
  more broadly-based GST and made the company tax
  rate more internationally competitive (cut from
  36 to 30)
• Areas ripe for reform for the New Government
  include
• broadening the bases for payroll tax and land tax
• restoring international competitiveness of
  company tax rate
• further reducing high effective MTRs facing low
  and high income earners

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Outline

• The Budget
• Australian economy
• You
• Tourism industry

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Australian economyBackground to Outlook

• Econtech has adjusted its economic forecasts to
  take account of the Budget
• Economy has over-heated with mining boom and
  fiscal stimulus from past Budgets, sending
  inflation and interest rates higher
• Personal tax cuts in this Budget provide a
  further significant fiscal stimulus
• But US financial market problems are lifting
  interest rates here and making credit harder to
  obtain
• Means economy to weaken despite other positive
  factors

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Australian economyGDP growth
13
Australian economyCPI inflation
14
Australian economy Unemployment rate
15
Australian economy90-day bill rate
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Outline

• The Budget
• Australian economy
• You
• Tourism industry

17
YouPersonal income tax changes

• Federal Budget tax cuts analysed using Econtechs
  Personal Income Tax Model (PITM), updated for
  2005/06 ATO Taxation Statistics released on 18
  March 2008
• Annual cost of cuts reaches 14.2 bn in 2010/11
  (Budget similar at 13.9 bn)
• cuts slanted to lower income end of tax scale

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YouPersonal income tax changes

• 2008/09
• Low Income Tax Offset (LITO) raised from 750 to
  1,200
• Threshold for 30 rate raised from 30,000 to
  34,000
• 2009/10
• Low Income Tax Offset (LITO) raised from 1,200
  to 1,350
• Threshold for 30 rate raised from 34,000 to
  35,000
• 2nd top marginal tax rate cut from 40 to 38
• 2010/11
• Low Income Tax Offset (LITO) raised from 1,350
  to 1,500
• Threshold for 30 rate raised from 35,000 to
  37,000
• 2nd top marginal tax rate cut from 38 to 37

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YouPenetration of higher marginal rates
20
YouTax share vs income in 05/06 Budget
21
You Tax share vs income in 07/08 Budget
22
You Tax share vs income in 2008/09 Budget
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YouAssessment of income tax changes

• This assessment takes into account the tax cuts
  in this years Budget (i.e. since last years
  Budget) planned for 2008/09 to 2010/11.
• Post 2008/09, no adjustments to the upper tax
  brackets so rising proportion of taxpayers on the
  top two MTRs.
• The increases in the low income tax offset will
  deliver large tax cuts for lower income earners.
• So the tax cuts are deepest for lower income
  earners. They (along with higher income earners)
  face the highest effective MTRs, so targeting the
  tax cuts on them gives a bigger boost to economic
  incentives.

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Outline

• The Budget
• Australian economy
• You
• Tourism industry

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Tourism industryComparative Outlook

• average annual growth for the next 3 years
• compared with the last 3 years
• also compared with the economy-wide growth rate
  for next three years of 3

26
Tourism industryGoods Trading industries
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Tourism industryTourism-related Industries
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Tourism industry Background to TFC Outlook

• Higher commodity prices are holding back the
  tourism industry
• higher oil prices mean higher costs for transport
  fuels and
• higher minerals prices mean a higher Australian
  dollar, because we are minerals exporters.
• High levels of outbound tourism
• Australia became a net importer of tourism in
  2005/06
• TFC forecasts higher outbound travel than last
  year due to an increase in aviation capacity,
  particularly low cost airline capacity, and
  strength in the Australian dollar

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Tourism industryTFC Forecasts of Movements (m
pers.)

30
Tourism industryTFC Forecasts of Value (bn,
real)

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Tourism industryTFC Inbound and Domestic (real
spend)
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Tourism industryBroad budget impact

• Economic slowdown globally
• though China still expected to grow strongly in
  2008 and 2009
• High interest rates domestically
• due to contractionary monetary policy stance and
  tight credit availability
• lower income available for discretionary spending
• Personal Income Tax cuts
• greater disposable incomes
• Relatively small targeted stimulus to Tourism
• 6.4 m in 2008/09

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Tourism industryTargeted Spending in 2008/09

• 4.6 m to the Australian Tourism Development
  Program
• Supporting regional tourism initiatives
• Committed 16 m over the next four years
• 1.8 m to the Business Ready Program for
  Indigenous Tourism
• Supporting indigenous tourism businesses
• National Tourism Strategy scheduled for
  completion in June 2009
• Strengthen capacity of Tourism industry address
  labour, investment, infrastructure, research and
  climate change issues

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Main messages

• Australian economic outlook
• Econtech expects slower economy than Treasury
• Means no more rate rises but unemployment heading
  up
• Personal income tax cuts to stimulate consumption
• New Government measures are fiscally neutral so
  havent eaten into surplus
• Need to run large surpluses now to avoid deficits
  when the budget environment becomes more
  challenging
• You and the personal income tax cut
• Tax cuts are deepest for lower income earners
• Tourism
• High oil prices and Australian dollar are
  challenges
• National Tourism strategy released in June 2009