“The fact that tax-bracket cut-offs are not indexed to inflation or wage growth is genuinely bizarre,” says the UNSW Business School’s Professor Richard Holden, with the Federal Budget 2016 just a week away. “This means that if the cut-offs are not changed, all taxpayers face an effective tax rise.”
Policies in the Federal Budget are to be handed down a week earlier than usual, on the 3rd of May 2016. These will affect the personal finances of households around the country. It will also set the scene for much of the upcoming election battle.
“In the Budget we should be on the lookout for policies that provide an immediate sugar hit, but push the downside beyond the forward-estimates period,” he cautions.
He says we should also pay attention on Budget night to announcements about spending. “If the Government is really serious about spending restraint then total spending as a percentage of GDP should fall by a full one percent or more over the forward-estimates period.”
He also warns that we should be more sceptical of GDP Forecasts. “When it comes to the future, it is very difficult to make accurate forecasts. This provides more scope for the optimistic side of one's nature to express itself, particularly when it comes to GDP growth four years out, where the forecasts are almost always higher than the current number.”
There is one other thing to remember when the Budget is handed down. He says the Federal Budget is nothing like a household budget, and we should ignore analogies that compare government debt to a credit card.
“Governments should not fund recurrent expenditure with debt except in times of crisis. However, the idea that governments should aspire, as households often do, to have zero debt is deeply flawed and runs counter to how the most prosperous economies have done things for centuries.”
Richard Holden is Professor of Economics at UNSW Business School and an Australian Research Council Future Fellow from 2013-2017. He is available to discuss the Federal Budget 2016.
Additionally, he will give his independent
analysis in a roundtable with other UNSW academics giving reaction to key budget measures, which will be live streamed at 12.30pm on Wednesday 4th May 2016.
For further comment call
Richard Holden on 02 9385 4700
Read more from Richard Holden on the Conversation
Julian Lorkin: 02 9385 9887