As the treasurer squares up for a fight with the banks over a new levy, his budget finds its unifying theme in making an example of foreign money. By Karen Middleton.
Scott Morrison budgets on turn-in from the world
As he outlined the pillars of his second budget on Wednesday, Treasurer Scott Morrison noted what he said were the opportunities detailed within its pages for people overseas wanting to buy into the Australian housing market.
“Foreign investors will be able to invest in affordable housing development and own affordable housing in this country,” Morrison told those attending his post-budget National Press Club luncheon address, which had migrated from the club’s nearby premises to the Great Hall of Parliament House to accommodate the hundreds of diners.
“That’s where they will get the tax incentive – not to compete with first-home buyers who are out there in the market trying to buy their first home. We will welcome and channel that foreign investment into building the housing we need.”
A treasurer can’t be seen to be discouraging foreign investment, so he made a point of noting that foreigners would be among those who could benefit from one of the suite of measures designed to help first-home buyers and low-income renters find places to live.
The government is offering managed investment trusts a tax concession if they buy into housing that is then offered at discounted rent to people on low to moderate incomes. The properties must be available for rent for at least 10 years.
In fact, that tax break was one of only a couple of wider budget measures among the range affecting “foreigners” that didn’t seek to penalise them.
They were presented in a budget that Morrison and Prime Minister Malcolm Turnbull said was about “fairness, security and opportunity”.
Foreigners are among those singled out in what overall is a revenue-raising budget of politically easy targets, which also include Australia’s unpopular five biggest banks, drug-taking dole recipients and anyone who complains about paying more tax to help the disabled.
Despite Morrison’s previous insistence that Australia’s budget has “a spending problem not a revenue problem”, this time he has prioritised raising revenue over cutting spending.
A Liberal–National government that normally advocates lower tax and defends the free market has relied on higher taxes and corporate penalties to find the funds to justify predicting a return to surplus in four years. Morrison said this was a budget for “better days ahead”.
The one other measure in the budget that could be seen as favourable to foreigners is a move to fulfil an election promise and introduce a temporary sponsored parent visa so Australians and eligible New Zealand citizens can bring in their overseas parents for periods from three to five years.
Their Australian children will be legally liable for the visiting parents, including covering all health and aged-care costs, while they are here.
The move, which will grant 15,000 such visas annually from November this year, is in response to complaints that the increasingly tough criteria for existing sponsored parent visas are virtually impossible for many families to meet, with extremely long waiting times and very high fees.
But the new visas don’t come free. While the budget papers don’t specify what they will cost, the government estimates they will add $99 million to the government’s coffers over the next four years.
Aside from these measures, other policy tweaks affecting non-Australians are on the negative side of the ledger.
From July, the charges to apply for an Australian visa will increase every year according to the official inflation figure, raising $410 million over the next four years.
From March next year, businesses employing foreign workers on skilled visas will pay an upfront annual levy per employee. Small businesses will be charged $1200 per temporary visa each year and a $3000 one-off fee for those being granted a permanent sponsored employment visa.
For companies turning over $10 million or more, those fees are higher: $1800 a year for temporary visas and $5000 for permanently sponsored migrant employees.
The $1.2 billion in proceeds will be directed into a new $1.5 billion “Skilling Australians Fund”, focused on getting 300,000 Australians to take on apprenticeships and traineeships in high-demand occupations over the next four years, including those that now rely on migrant workers.
Alongside the incentive for foreigners to invest in affordable housing, there are penalties for those who buy other residential properties and leave them empty for six months in every year.
The annual fee will be equal to whatever foreign-investment application fee the owner paid when it was bought, raising $16.3 million over four years and taking effect from 7.30 on budget night.
Capital gains tax concessions will be cut for foreign and temporary tax residents, raising $581 million.
There is a crackdown on Australian pension claimants who are living overseas, with a new requirement that from July next year, age and disability pensioners must have 15 years’ continuous Australian residence. Some will qualify after 10 years if five of those were during their working lives or were years in which they didn’t claim benefits.
And, once again, the budget includes an effective cut to foreign aid by deferring plans to resume indexing it to inflation. Previously frozen but scheduled to increase in 2019-20, the aid budget has been frozen again for another two years, saving $303 million.
There is a $79 million allocation to establish a police development program in the Solomon Islands when the long-running regional assistance peacekeeping mission there winds up at the end of June. Part of that funding will be diverted from the overall aid budget.
The Australian Federal Police onshore will receive a $321 million boost.
Morrison says the budget is proof the government is “doing”, not just talking.
He is embracing the unexpectedly centrist nature of his presentation to appeal to the other parties to “meet us in the middle” and pass the whole lot through parliament.
Under pressure from an electorate disillusioned with “politics as usual” and in some cases demanding leaders pull down the shutters and stoke the home fires, the government is seeking to send the message that it is getting on with things and putting Australians squarely and actively first.
It is the same message that Opposition Leader Bill Shorten was seeking to send with a Labor Party television advertisement he featured in last week, which was designed to be aired only in Queensland and vowed to put “Australians first” for jobs.
The Saturday Paper has been told the ad was created to take advantage of a short-term “cheap media buy” opportunity in regional Queensland.
It aired last week but ran into political trouble when it featured in a news report on the Nine Network pointing out that it lacked diversity, with a supporting cast of real Australian workers who all appeared to be – although apparently weren’t entirely – light-skinned and Anglo.
The fact that Queenslanders face a state election within the next year and Pauline Hanson’s One Nation party, which won two Queensland senate seats at last year’s federal election, is polling strongly made the ad’s critics suspicious.
Queensland is also the home of a clutch of important marginal federal seats, some of which Labor holds only narrowly.
Faced with a barrage of criticism on social media, Shorten vowed to ask the Labor Party to review the advertisement and later said he accepted it had lacked diversity – a “bad oversight that won’t happen again”.
But his colleague and former leadership rival Anthony Albanese publicly attacked the ad, calling it “a shocker” and prompting renewed speculation about internal unrest.
“It should never have been produced and it should never be shown,” Albanese said.
The “Australians first” message has been research-tested by both major parties and continues to be promoted, including in the budget – albeit as an undertone rather than a trumpeted centrepiece.
Further out front in the 2017 budget are its two biggest tax measures.
The government has enraged Australia’s big four banks plus a fifth – Macquarie Bank – by slapping them with a new permanent levy, raising $6 billion over the next four years.
It is also giving the banking regulator greater powers to scrutinise bank executives’ corporate behaviour and potentially curb their pay packets.
Unsurprisingly, the banks are enraged. Morrison sought to shame them into silence.
“Don’t do it,” he said, declaring he knew that they were gearing up to protest and on whose side the public would be.
“They already don’t like you very much. They don’t like us as politicians universally that much either. So we understand your pain. But prove them wrong on this occasion. Prove them wrong. Don’t confirm their worst impressions. Tell them another story. Tell them you will pony up and help fix the budget.”
Being saddled with a $6 billion bill has left the banks deeply unamused. Their chief financial officers met with treasury officials in Canberra on Thursday morning. Afterwards, the Australian Bankers’ Association chief executive, former Queensland Labor premier Anna Bligh, blasted what she called “an insult” of policy on the run.
“The government is playing fast and loose with some of the most important parts of the financial system in this country,” Bligh said.
She said the banks were to be given the draft levy legislation next Wednesday and would only have 24 hours to respond. The legislation would stay secret until it was presented to parliament.
“This is proceeding with indecent haste,” Bligh said.
Former prime minister John Howard also weighed into the post-budget argument, criticising the new bank impost as not a levy but “a tax” and likening it to the Rudd Labor government’s politically disastrous mining tax.
But speaking to a breakfast in Perth on Thursday, Howard defended the political nature of budget documents.
“It is utterly unrealistic for any government framing a budget or giving consideration to an economic initiative to ignore the politics, the political context in which that document is put together,” Howard said.
This year’s budget is a highly political document: populist and crafted to make it hard for Labor to oppose its key revenue-raising elements, and designed to protect the government from political attack from the left.
The schools funding overhaul it flagged in advance echoes the needs-based model Labor proposed, which was based on work commissioned from businessman David Gonski.
Prime Minister Turnbull not only stole the framework of Labor’s model, with less overall funding and targeting a handful of wealthy schools and some less-wealthy Catholic schools, he employed Gonski himself to undertake a review.
That meant all of the union-produced pro-Labor political campaign material urging people to “give a Gonski” about education will be relegated to the dustbin. The Greens are contemplating facilitating its passage through the senate.
The budget also includes a promise to legislate to entrench Medicare so it can never be dismantled or sold – a move solely designed to make a political point, a bit like John Howard’s legislation to entrench heterosexual “marriage” – and separate provisions, as promised, to make it an offence to impersonate a Commonwealth agency.
Both of those are responses to the so-called “Mediscare” campaign Labor ran in the lead-up to last year’s election.
Even the more traditionally conservative measures, such as the plan to increase some university fees and lower the repayment threshold for student loans, are a heavily moderated version of what was proposed in the Coalition’s now-infamous 2104 budget, which championed full fee deregulation. The university fee plan was among the 2014 measures the senate refused to pass.
In this budget, Malcolm Turnbull has fulfilled his longstanding desire to abandon those blocked 2014 budget items – nicknamed the “zombie measures” – once and for all, breaking finally and completely with the program put forward by then prime minister Tony Abbott and then treasurer Joe Hockey.
The bank levy is being linked to the hole in the budget those failed measures left behind.
“The banks can do more to support the job of budget repair given that we’ve got a $13.5 billion bill from the senate to ensure that we run balance in the budget,” Morrison said on Tuesday night.
He has sought to appropriate Abbott’s self-imposed mantle as the infrastructure prime minister, with a budget that devotes billions to roads and especially rail, not least Deputy Prime Minister Barnaby Joyce’s pride and joy, the inland rail linking Brisbane and Melbourne. There is also a new regional development fund, which Labor believes will double as a pre-election pork barrel, a practice embraced by governments past.
Aside from the bank levy, the other big break from the traditional conservative approach to tax in this budget is in the proposal to increase the Medicare levy by 0.5 per cent for all who pay it, with the revenue raised to be used to pay for the National Disability Insurance Scheme.
It doesn’t take effect for two years – about the time the next election is due.
“We don’t strike the levy until the bills start coming in and that’s important,” Morrison said.
The government has chosen to use the Medicare levy as the vehicle to gather the extra tax and to link the revenue directly with funding the NDIS – freeing up other funds for other things – because the levy is the most publicly accepted of all the taxes and the NDIS has widespread support. Morrison is daring Australians not to endorse it.
“I believe Australians will support it, because they’ve got big hearts and look after their mates,” he told the Press Club, after illustrating the need with an example from his own extended family.
In the meantime, an existing temporary “deficit levy” of 2 per cent on high-income earners is being removed as scheduled.
Labor says that means high-income earners are getting a tax cut while the rest pay more.
“The budget … delivered a tax cut for millionaires and for multinationals and a tax hike for working Australians,” Bill Shorten told ABC Radio.
In his budget reply speech on Thursday night, Shorten said Labor would restore the deficit levy on high-income earners. He would only commit to the higher Medicare levy for higher earners and focused on fairness and fakeness, accusing the government of not really believing in what it was presenting. He also said he would only support the bank levy if there were a guarantee it was not passed on to customers. Taking aim at the changes to 457 visas, he said: “I congratulate the prime minister on getting rid of foreign antique dealers and foreign goat herders.”
Shorten suggested that in trying to appeal to voters’ populist values, Prime Minister Turnbull was betraying his own and those of the Liberal Party.
Many within the Coalition are pleased with the tax on banks – something they can now use to respond to complaints from their constituents, given the government’s refusal to agree to a royal commission. Others share the concern that it betrays Coalition values.
Some have also questioned the budget’s forecasts – or “projections” as they are now called – for wages and economic growth.
Liberal backbench MP Craig Kelly remarked it was more likely to take “100 years” to get from this year’s deficit of more than $29 billion to the $7 billion surplus Morrison says will be achieved by 2020-21.
But Coalition MPs anticipate more universal endorsement of a proposed trial to drug-test 5000 new recipients of unemployment benefits and youth allowance and force them onto income management and possibly into counselling and medical treatment if they fail.
The Greens fear the testing could worsen addiction problems. “What an incredible violation of individual liberties,” Greens leader Richard Di Natale said. “This is a very, very dangerous precedent.”
Drug and alcohol counsellors have expressed concern that restricting welfare for those with drug problems could drive them to crime.
The treasurer and social services minister have both confirmed that in selecting the location for their new drug-testing trial, they will rely partly on the results of sewage testing, to pinpoint areas with evidence of high drug use.
Asked if he would support after lunch breath-testing of MPs and senators before they ventured to question time, Christian Porter told Sky News: “I’d have no problem with that, but that’s not up to me.”
The government’s selective interventions are raising uncomfortable questions about where the line should be drawn.
Given it is establishing a new watchdog body to scrutinise bank executives’ corporate behaviour, Sky News host and former New South Wales Labor premier Kristina Keneally asked Porter on Thursday why the government didn’t go further and regulate their personal behaviour by imposing drug-testing on them, too.
“A whole range of very large and important employers around Australia do maintain a drug-free environment and do test employees,” Porter replied. “Whether the banks decide to do that or not is a matter for them.”
Keneally pushed the point, asking: “Why is it a matter for them? You’ve now gotten involved with their remuneration and other things. Why is that a matter for them? Drugs are illegal.”
Porter said it was “just about the proportionality of responses to known problems”. He said the government was addressing “very well-known” problems in banking related to a lack of scrutiny of practices, particularly in financial planning, and that drug-testing executives was “not germane” to the problem.
Plainly, making bank chief executives pee in a cup would be pushing things too far.
But the government is already travelling a way down the corporate oversight road to demand a return on the deposit guarantee it has offered since the global financial crisis.
And the push-back is showing.
When Scott Morrison stood at the podium for his National Press Club address the day after handing down his budget, the usual sponsor’s logo – a large red ‘W’ – was nowhere to be seen on either the backdrop or the podium.
It turns out the logo removal wasn’t the doing of Westpac or the treasurer, but the National Press Club general manager, Maurice Reilly, who decided to help both sponsor and guest avoid the discomfort of a front-page photograph.
There was no protest from either. No sign was the clearest sign of a showdown ahead.
And whatever small protest there might be over the new imposts on foreigners, neither Coalition nor Labor is likely to say much.
They’re more worried about the wrath of those telling them firmly that charity begins at home.
And both are saying message received.
This article was first published in the print edition of The Saturday Paper on May 13, 2017 as "Morrison budgets on turn-in from the world".
A free press is one you pay for. In the short term, the economic fallout from coronavirus has taken about a third of our revenue. We will survive this crisis, but we need the support of readers. Now is the time to subscribe.