tag:theconversation.com,2011:/us/topics/myefo-2017-47850/articlesMYEFO 2017 – The Conversation2017-12-21T00:03:08Ztag:theconversation.com,2011:article/893072017-12-21T00:03:08Z2017-12-21T00:03:08ZUniversities get an unsustainable policy for Christmas<figure><img src="https://images.theconversation.com/files/200285/original/file-20171220-4973-1gfpm1i.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The government is proposing to save A$2.2 billion on education over the next four years, which will hit students the hardest.</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>On Monday, the government announced its third attempt to significantly reduce spending on higher education in the <a href="http://www.budget.gov.au/2017-18/content/myefo/html/">Mid-Year Economic and Fiscal Outlook</a> (MYEFO). </p>
<p>It’s unclear whether the proposal is intended to be a long-term policy, or a bargaining chip to achieve the cuts Education Minister Simon Birmingham <a href="https://ministers.education.gov.au/birmingham/focusing-facts-higher-education-reform">tried to push through earlier this year</a>. </p>
<p>Overall, it’s not very good policy, as it’s primarily about making savings rather than improving higher education. Australia needs a higher education system that can respond to change, not one that is locked down. It will become extremely difficult for any minister to reverse these funding cuts after a couple of years. Students will pay a greater share of costs as a result. </p>
<h2>What’s in the proposal?</h2>
<p>The government is <a href="https://www.education.gov.au/higher-education-reform-package-student-overview">proposing</a> to achieve savings in ways that don’t require Senate approval. It proposes to:</p>
<ul>
<li><p>freeze Commonwealth Grant Scheme (CGS) funding for bachelor level courses in 2018 and 2019 at 2017 levels. This means no increases for any additional bachelor degree student places or for increased costs due to inflation</p></li>
<li><p>increase CGS funding for bachelor level courses in 2020 and subsequent years by the growth rate in the 18-64 year old population (so, <a href="http://www.abs.gov.au/ausstats/abs@.nsf/Lookup/3222.0main+features52012%20(base)%20to%202101">around 1.2% a year</a>), but only for universities which meet performance targets (the detail of which will be discussed in 2018) </p></li>
<li><p>reduce the number of funded postgraduate student places by removing 3,000 postgraduate places, which we are told are not used (and hence do not cost anything)</p></li>
<li><p>cease funding over 1,000 student places <a href="https://ministers.education.gov.au/pyne/coalition-announces-additional-university-places">allocated in 2013</a> to meet priority skill and regional needs - 419 postgraduate places in allied health and nursing, 533 in language diplomas and 250 in enabling/tertiary preparation courses; and</p></li>
<li><p>change the current allocation of student places for diplomas, associate degrees and postgraduate level courses to better meet industry needs and reflect institutional outcomes (the detail of which will be discussed in 2018).</p></li>
</ul>
<p>The government also indicated it would pursue some savings requiring Senate approval. These are to:</p>
<ul>
<li><p>lower the HELP repayment threshold to A$45,000 and make other changes to the HELP repayment schedule to speed up student debt repayments; and</p></li>
<li><p>introduce a lifetime lending limit across all HELP programs, including HECS-HELP, capped at A$104,440 for most students and A$150,000 for students in medicine, dentistry and veterinary science. </p></li>
</ul>
<h2>What will the proposals do?</h2>
<p>The government estimates these proposals will save around A$2.2 billion over the next four years. Most of the savings come from freezing funding for bachelor degree courses in 2018 and 2019, and the limit on funding growth for those courses from 2020 onwards. </p>
<p>This funding is delivered through the student place subsidies paid under the CGS. Combined with a student’s contribution (usually paid through HECS-HELP), these cover the cost of teaching students.</p>
<p>The CGS provides subsidies for all courses, not just bachelor degree courses. It also provides a number of loadings, such as <a href="https://theconversation.com/a-new-approach-to-regional-higher-education-is-essential-to-our-economic-future-88537">the regional loading</a>, to help to meet extra costs. In 2017, CGS spending will be around A$7.1 billion in total. </p>
<hr>
<p><iframe id="FLwAm" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/FLwAm/3/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<hr>
<p>The main target of the government’s proposals is the A$6 billion of spending on bachelor degree courses. Currently, universities can offer as many places for bachelor students as they want in the demand-driven system, so spending on this element of the CGS can increase without government approval. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/uncapping-of-university-places-achieved-what-it-set-out-to-do-so-why-is-it-dubbed-a-policy-failure-61082">Uncapping of university places achieved what it set out to do. So why is it dubbed a policy failure?</a>
</strong>
</em>
</p>
<hr>
<p>In the case of other courses, such as diplomas, associate degrees and postgraduate degrees, the government still controls how many places a university can offer. It controls its spending on these courses and special loadings. </p>
<p>The government will no longer try to lower the amounts of its contribution to student places, which are specified in higher education funding legislation. Instead, it will use a provision in the legislation that allows it to put a cap on funding for bachelor degree courses without Senate approval. </p>
<p>This is achieved simply by inserting a sentence specifying the upper limit on bachelor degree course funding in a university’s CGS funding agreement. The only restriction placed on the government is that the amount cannot go down from the previous year. So, in 2018, a university’s maximum funding for bachelor degree courses cannot be less than it was for 2017.</p>
<p>Universities don’t have the option not to sign these funding agreements. They are a precondition of getting any CGS funding and having any Commonwealth supported students. </p>
<p>Currently, the government will pay a university for every domestic bachelor degree student according to the legislated subsidy levels for the relevant year. It will still do this, but only up to the maximum amount specified in the funding agreement - then it will just stop. </p>
<p>When the maximum amounts for every university in 2018 are added up, they will not exceed the A$6 billion expected to be spent in 2017. The same goes in 2019.</p>
<h2>What happens after the freeze lifts?</h2>
<p>From 2020, a university may have its maximum amount for student places in bachelor degree courses increased by the growth rate in the 18-64 year old population, if the university meets performance targets. On current <a href="http://www.abs.gov.au/ausstats/abs@.nsf/Lookup/3222.0main+features52012%20(base)%20to%202101">ABS population projections</a>, that is likely to be around 1.2% each year.</p>
<p>Assuming all universities meet the performance targets, there are two ways of looking at the impact:</p>
<ol>
<li><p>If a university grows its bachelor degree student places to match Australia’s growing population, the government subsidy component will never be increased to compensate for the increased costs of providing bachelor level places due to inflation. </p></li>
<li><p>If a university never increases its bachelor degree student places, the government subsidy component cannot rise by more than 1.2%. If inflation is 2.5%, the real value of the subsidy will be reduced by 1.3%.</p></li>
</ol>
<p>Education Minister Simon Birmingham <a href="https://ministers.education.gov.au/birmingham/interview-abc-rn-breakfast-hamish-macdonald">has been asked</a> what his policy will mean for the number of domestic student places. He can’t answer these questions because it’s not his decision. Universities are unlikely to increase domestic bachelor degree student places and the policy settings are likely to distort university decision-making.</p>
<p>Universities may decide to have fewer students in courses with above-average subsidy levels, such as health sciences, nursing, engineering and agriculture. They may increase students in courses with low subsidy levels, such as law, accounting, economics and administration. </p>
<p>The government hasn’t released estimates of how university funding will be reduced due to restricting growth in bachelor degree funding. The graph below indicates how it is likely to be reduced each year to 2025, based on a fairly conservative set of assumptions. It shows how rapidly the savings from such a proposal escalate. </p>
<hr>
<p><iframe id="bLfA9" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/bLfA9/5/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<hr>
<p>If the government’s policy is implemented, any minister would find it almost impossible to reverse. Ministers who want to change policy and increase spending have to find savings from elsewhere to cover the costs. The cost of reversing this policy would be massive, as it takes only a few years for it to produce savings of over a billion dollars a year.</p>
<h2>How does this affect students?</h2>
<p>While the government will substantially reduce its funding contribution by eroding its real value, students will continue to pay more as their contribution to the cost of their degree continues to increase with inflation. </p>
<p>In addition, if a university decides to grow its bachelor level student places despite not receiving any government subsidy for them, the student will still be required to make their contribution. </p>
<p>Both of these factors mean the 30-year trend of shifting the cost of higher education from government to students will continue. This is despite it being a major part of the reason student debts are continuing to grow and greater amounts are not being repaid - a problem the government claims it’s trying to fix. </p>
<h2>The demand-driven system is not unsustainable</h2>
<p>The rapid expansion that occurred under the demand-driven system <a href="https://www.universitiesaustralia.edu.au/Media-and-Events/media-releases/University-enrolment-growth-remains-stable--latest-data#.Wjr52lT1VBy">has largely stabilised</a> and total funding for general research and tertiary education has declined in real terms by 1.3% over the last four years. </p>
<hr>
<p><iframe id="ni4lQ" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/ni4lQ/2/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<hr>
<p>Previous savings paid for most of the demand-driven expansion in student places and Australia’s spending on tertiary education as a share of GDP is <a href="http://melbourne-cshe.unimelb.edu.au/news-and-events/beyond-the-demand-driven-obsession-and-policy-impasse">now lower</a> than it was before the demand-driven system was introduced.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/vocational-education-and-training-sector-is-still-missing-out-on-government-funding-report-88863">Vocational education and training sector is still missing out on government funding: report</a>
</strong>
</em>
</p>
<hr>
<p>The government is giving the objective of returning the budget to surplus a higher priority than the development of our tertiary education sector. This includes the vocational education and training system, which has already had its funding eroded over many years. </p>
<p>We can have both budget repair and well-funded tertiary education, but not with this policy.</p><img src="https://counter.theconversation.com/content/89307/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Mark Warburton is a part-time consultant and associate of PhillipsKPA, an education industry consulting group. He worked for Universities Australia in 2015 and prior to that was a public servant for 32 years, advising both Labor and Coalition Governments on higher education. </span></em></p>The cuts to higher education funding are more about making savings than improving higher education, and would be extremely hard to change in the future.Mark Warburton, Honorary Senior Fellow, LH Martin Institute, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/890142017-12-18T04:36:45Z2017-12-18T04:36:45ZSeven charts on the 2017 budget update<p><em>Here’s how the budget is looking at the mid-year mark, in seven charts.</em></p>
<hr>
<p><iframe id="tc-infographic-147" class="tc-infographic" height="400px" src="https://cdn.theconversation.com/infographics/147/206c88329988c8495d6ed4b26c9a6abeaadc7312/site/index.html" width="100%" style="border: none" frameborder="0"></iframe></p>
<p><iframe id="tc-infographic-148" class="tc-infographic" height="400px" src="https://cdn.theconversation.com/infographics/148/afbbc04e49617bf7547be4dc9f9b8bafcb8aa247/site/index.html" width="100%" style="border: none" frameborder="0"></iframe></p>
<p>The A$5.8 billion drop in the 2017-18 underlying cash deficit compared with the original May budget is due more to higher revenue than lower spending. Receipts are higher by A$3.6 billion and payments are lower by A$2.1 billion. </p>
<p>The higher receipts reflect the stronger economy, which implies higher company tax (up A$3.2 billion) and superannuation fund taxes (up A$2.1 billion).</p>
<p>Receipts would have been even higher if not for stubbornly weak wages growth which, despite stronger employment growth, has tended to dampen individuals’ income tax receipts. These are in fact down by A$0.5 billion.</p>
<p>The estimates of GST and other taxes on goods and services remain unchanged since the budget.</p>
<p>The lower payments of A$2.1 billion are driven by several changes having opposite effects. Some of these are: </p>
<ul>
<li><p>A$1.2 billion (over four years) lower welfare payments to new migrants due to longer waiting times;</p></li>
<li><p>A$1 billion (over four years) lower payments to family daycare services due to more stringent compliance checking; and</p></li>
<li><p>A$1.5 billion (over four years) lower disability support payments due to lower than expected recipient numbers.</p></li>
</ul>
<p>There is not much change in the net debt projections relative to those in the 2017-18 budget. Net debt is A$11.2 billion lower at A$343.8 billion in 2017-18 (around 19% of GDP). Debt stabilises in 2018-19 and starts to steadily decline thereafter to about 8% of GDP in the next ten years. </p>
<p>The lower deficits as a share of GDP are obviously reducing debt, but one factor tending to increase debt is student higher education loans. These are projected to increase by 32% from A$44.4 billion to A$58.8 billion over just the next four years.</p>
<hr>
<p><iframe id="AQn8U" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/AQn8U/2/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<p>The economic outlook continues to be a puzzle. National output of goods and services, real GDP, is expected to grow slightly slower in 2017-18 than the budget forecast – 2.5% compared with 2.75%.</p>
<p>However this is an improvement on the 2% achieved in 2016-17. And it is expected to increase further to 3% in 2018-19. </p>
<p>The economy is being driven by strong global growth and strong domestic business investment. Australia’s major trading partners are forecast to grow (meaning real GDP growth) at a weighted average of 4.25% in each of the next three years.</p>
<p>Wages and household consumption are the puzzle – they are not growing as fast as expected from the stronger than expected employment growth (up 0.25% on the budget to 1.75%) and lower than expected unemployment rate (down 0.25% on the budget to 5.5%). </p>
<p>Household consumption growth is down 0.5% on the 2017-18 Budget forecast to 2.25%. This has in fact become a global phenomenon due to higher costs and job insecurity from the forces of globalisation and automation.</p>
<hr>
<p><iframe id="lHScA" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/lHScA/2/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<p>Commodity prices are notoriously volatile and hard to predict, yet they are critical to the budget forecasts because they impact the revenue of resource companies which feeds into company taxes and other taxes.</p>
<p>Iron ore prices are assumed to remain flat at US$55 per tonne over the forecast period, as in the budget. This forecast is almost certain to be wrong because iron ore prices never stay flat for long – the problem is that we can’t say in which direction it will be wrong.</p>
<p>The same applies to thermal coal prices which are assumed to be flat at US$85 per tonne which is again consistent with the budget forecast.</p>
<hr>
<p><iframe id="mHhYg" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/mHhYg/7/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<p>Australian taxpayers continue to bear most of the burden of budget repair. The government can claim with some justification that their efforts to reduce payments further have been thwarted by the Senate.</p>
<p>Excluding the effect of Senate decisions, new spending has been more than offset by reductions in other spending. The gap between the revenue and payment is reducing at the rate of about 0.6 percent per year. </p>
<p>As a share of GDP payments are expected to be 25.2% in 2017-18, falling to 24.9% of GDP by 2020-21 which is slightly above the 30-year historical average of 24.8% of GDP.</p>
<hr>
<p><iframe id="iSrTJ" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/iSrTJ/6/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<p>Wage growth has been revised down from an already low 2.5% in the budget to 2.25% in MYEFO. With the Consumer Price Index forecast to grow at 2%, wages are barely keeping pace with inflation – growing in real purchasing power by only 0.25%. </p>
<p>This provides a meagre compensation for labour productivity growth which is implied to be about 1% in MYEFO. Wage growth is expected to pick up by 0.5% next year to 2.75%. </p>
<p>This is important because it underpins government revenue growth, yet it’s brave to expect the deep forces that are keeping wages down in Australia and around the world to turn around and exactly match the 0.5% growth in real GDP expected to occur next year.</p>
<hr>
<p><iframe id="elZAL" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/elZAL/2/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<p>New measures since the budget have increased the deficit on both the revenue and expenditure sides of the budget. On the revenue side, for example, higher education changes reduced revenue by A$76 million and the GST by A$70 million. </p>
<p>On the expenses side, needs-based funding for schools has cost an additional A$118 million and improving access to the Pharmaceutical Benefits Scheme costs A$330 million. The roll-out of the NDIS in Western Australia adds another cost at A$109 million, and Disability Care Australia at A$362 million.</p><img src="https://counter.theconversation.com/content/89014/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ross Guest does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Seven charts on the highlights from the government’s mid year update of the budget.Ross Guest, Professor of Economics and National Senior Teaching Fellow, Griffith UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/892912017-12-18T04:05:04Z2017-12-18T04:05:04ZGovernment budget update saved by higher than expected economic figures<p>The 2017-18 <a href="http://www.budget.gov.au/2017-18/content/myefo/html/">Mid-Year Economic and Fiscal Outlook (MYEFO)</a> is another reminder - if one is needed - that the relationship between the budget and the economy runs in both directions. While we mostly ask the question, “how will the budget affect the economy?”, this update shows the economy can also have (and has often had) a significant impact on the the budget.</p>
<p>The highlights of this year’s MYEFO, as far as the government is concerned, are the A$9.3 billion improvement in the underlying cash balance over the four years to 2020-21 (compared with what had been forecast in the May budget), and the consequential A$11 billion reduction in the forecast peak in net debt (from A$366 billion to A$355 billion) in that year.</p>
<p>These improvements are the result of revisions to economic assumptions and other so-called “parameter variations” since the budget, which in total have improved the four-year bottom line by more than A$11 billion. The biggest of these came from reductions in payments to people with disabilities, students, single parents and age pensioners (totalling A$4.6 billion over four years) due to lower-than-expected recipient numbers. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/budget-update-shaves-growth-and-wage-forecasts-but-is-brighter-about-the-deficit-89292">Budget update shaves growth and wage forecasts but is brighter about the deficit</a>
</strong>
</em>
</p>
<hr>
<h2>Personal income tax cuts seem possible</h2>
<p>There is no additional detail in MYEFO regarding the government’s <a href="https://theconversation.com/morrison-talks-down-personal-income-tax-cuts-56308">foreshadowed personal income tax cuts</a> ahead of the next election. But if the forecast surplus for 2020-21 of A$10.2 billion is credible, then there’s arguably some scope for the government to fund personal income tax cuts beginning in that year.</p>
<p>Although the cost of more significant tax cuts would escalate substantially over the medium term, there is actually more scope for these cuts than generally realised (provided the government succeeds in keeping growth in spending under control).</p>
<p>That’s because the projected moderate surpluses, averaging about 0.5% of GDP out to 2027-28, incorporate an arbitrary assumption that taxation revenue will be capped at 23.9% of GDP. If that assumption wasn’t made, the projected surpluses would rise to 1.6% of GDP by 2027-28. </p>
<p>In dollar terms that would imply a surplus of around A$55 billion, compared with one of around A$15 billion if the surplus were only 0.5% of GDP. Over the period 2021-22 to 2027-28, relaxing the assumption that tax revenues are capped at 23.9% of GDP results in almost A$90 billion of additional budget surpluses. This is over and above what is projected with that “tax cap” in place.</p>
<p>Presumably, some of those “additional surpluses” are absorbed, in the government’s internal figuring, by the promised phased reduction in the company tax rate for businesses turning over more than A$50 million per annum by 2025-26 - which according to the last publicly available estimate would reduce revenues by some A$65 billion over ten years.</p>
<p>However, that would still leave a considerable amount “left over” to pay for personal income tax cuts, and allow the government to continue to project surpluses of around 0.5% of GDP out to the second half of the next decade.</p>
<p>That’s assuming, of course, that we are able to clock up 36 years of uninterrupted economic growth, and that all the other projections come to pass, including for a return to more “normal” rates of wages growth. </p>
<h2>Economic indicators in MYEFO</h2>
<p>Treasury has revised downwards its forecast for economic growth in the current financial year, from 2.75% to 2.5%. Partly offsetting this is stronger growth in public spending, which is now forecast to rise by 4% in real terms in 2017-18, up from 2.5% at the time of the May budget. </p>
<p>This reflects faster growth in both government spending (on the NDIS) and investment (NBN and state government infrastructure investment). The forecast for business investment has also been upgraded, from flat at budget time to growth of 2%, the result of both stronger growth in non-mining business investment and a smaller decline in mining investment.</p>
<p>This is largely the result of a downward revision to the forecast for growth in household consumption spending which has been lowered from 2.75% to 2.25%: and this carries over into a 0.25 percentage point reduction in the forecast for 2018-19, to 2.75%. Even these require a further decline in the household saving rate. </p>
<p>The forecast for dwelling investment spending has turned around from 1.5% growth to a decline of 1.5%, with the “softening in dwelling investment occuring slightly earlier than expected”.</p>
<p>Longer term, the government is still anticipating that economic growth will average 3% per annum from 2018-19 through 2023-24, by which time all the “spare capacity” in the labour market will have been absorbed. That is, the unemployment rate will be down to 5% and underemployment (workers not being able to get enough hours at work) returned to more normal levels. </p>
<p>The longer-term projections also assume that wages growth accelerates significantly from 2019-20. This represents the greatest risk to the goverment’s promise of a return to surplus by 2020-21.</p><img src="https://counter.theconversation.com/content/89291/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Saul Eslake does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The improvements in the government’s debt position are entirely because of revisions in economic assumptions, not fantastic fiscal management.Saul Eslake, Vice-Chancellor’s Fellow, University of TasmaniaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/892922017-12-18T03:35:39Z2017-12-18T03:35:39ZBudget update shaves growth and wage forecasts but is brighter about the deficit<p>The <a href="http://www.budget.gov.au/2017-18/content/myefo/html/">2017-18 budget update</a> shows an improvement in the deficit forecast for this financial year but predicts lower economic growth and a smaller increase in wages than was expected in the May budget.</p>
<p>The deficit for 2017-18 is now expected to come in at A$23.6 billion, an improvement of A$5.8 billion from the May forecast, according to the Mid-Year Economic and Fiscal Outlook released by Treasurer Scott Morrison and Finance Minister Mathias Cormann.</p>
<p>Growth for this financial year is forecast to be 2.5% compared with the budget’s 2.75%, reflecting recent lower-than-expected growth in household consumption.</p>
<p>Nevertheless Morrison and Cormann said Australia’s growth story “remains a compelling one, and although real GDP growth has been slightly tempered in 2017-18, the trajectory is upward”. Real GDP is forecast to grow at 3% in 2018-19, the same as the budget number.</p>
<h2>Budget update on wages</h2>
<p>The update notes that wage growth “remains low by historical standards in both the public and private sectors and has been more subdued than expected since budget”.</p>
<p>Wages are forecast to increase by 2.25% through the year to the June quarter 2018 and 2.75% through the year to the June quarter 2019.</p>
<p>This is 0.25 of a percentage point lower in both years compared with the budget – vindicating the s<a href="https://theconversation.com/vital-signs-dismal-wages-growth-makes-a-joke-of-budget-forecasts-77870">cepticism that economists expressed</a> about the budget forecast being too optimistic.</p>
<p>The flat wages situation reflects a serious political pressure point for the government, as many people struggle with high power prices and other squeezes on their cost of living.</p>
<p>“Wage growth is forecast to lift as the economy strengthens, inflation picks up and excess capacity in the labour market is reduced,” the update says.</p>
<p>Budget receipts have been revised upwards by about A$3.6 billion in 2017-18 and A$2.8 billion over the forward estimates compared with budget time – driven mainly by company tax and superannuation tax. The company tax forecasts reflect increased profitability and enforcement activity by the Australian Taxation Office.</p>
<p>But “over the forward estimates, lower forecasts for wages and unincorporated business income are expected to weigh on individuals’ income tax receipts,” the update says.</p>
<p>The half yearly revised numbers confirm that the budget is on track to have a surplus in 2020-21. The projected surplus of A$10.2 billion in that year is A$2.7 billion better than estimated in May.</p>
<h2>Savings measures on education and welfare</h2>
<p>The government has announced in the update a new welfare crackdown to save money and also an alternative higher education savings package after it could not pass its earlier proposals.</p>
<p>Savings of A$1.2 billion over four years will be reaped by broadening the criteria for waiting periods for new migrants before they can get various welfare benefits.</p>
<p>The changes will extend the present two-year waiting period for a range of payments, such as Newstart, to three years, and introduce a consistent new three-year waiting period to apply to a further number of benefits such as Family Tax Benefit and Paid Parental Leave.</p>
<p>Social Services Minister Christian Porter said the measures “will reinforce the foundational principle that Australians’ expectation of newly arrived migrants is that they contribute socially and economically for a reasonable period before having access to our nation’s generous welfare system”.</p>
<p>The higher education package includes a freeze on total Commonwealth Grant Scheme funding from January 1, set at 2017 levels, and a combined limit for all tuition fee assistance under all HELP and VET Student Loans.</p>
<p>The government will also pursue an alternative set of HELP repayment thresholds from July 1 next year, with a new minimum repayment threshold of A$45,000, higher than the A$42,000 in the original plan. At present the threshold is A$55,000.</p>
<p>Most of the new higher education package doesn’t have to be legislated, thus avoiding the Senate hurdle. The previous higher education package was set to save A$2.7 billion over the forward estimates; the new one saves A$2.1 billion.</p>
<p>Real growth in payments over the budget period is expected to be an annual average of 1.9%. Compared with the budget, nominal payments are lower in every year of the forward estimates.</p>
<p>The payment to GDP ratio is expected to fall to 24.9% of GDP by 2020, slightly above the 30 year historical average.</p>
<p>Morrison told a joint news conference with Cormann: “As we push into the new year, there is still more work to be done but we are on the right track.</p>
<p>"Jobs and growth will continue to be our mission and our focus. Helping the lives of the thousands of Australians, millions of Australians, and their families and returning the budget back to balance.”</p>
<p>Cormann said: “This is a good set of numbers in all of the circumstances.”</p>
<p>Shadow treasurer Chris Bowen said the government remained committed to increasing the tax paid by working Australians. He said there was no mention of personal tax cuts – which Malcolm Turnbull has foreshadowed – in the update. People only got a tax rise.</p>
<p>He condemned the revised higher education package, saying it would particularly hit those from a lower socioeconomic background. </p>
<p>The chair of Universities Australia, Professor Margaret Gardner, said the package would leave university funding “frozen in time”. She said the blow would be hardest in areas where university attainment was lowest, such as regional areas.</p>
<p>The Business Council of Australia said the budget update showed “welcome signs of improvement but it also signals the key role the business community will pay to strengthen the budget in the future”.</p>
<p>BCA chief executive Jennifer Westacott said business needed to be given the right environment to grow, including a competitive tax rate and a highly skilled workforce. “Delivering the remainder of the government’s plan for a reduced company tax rate has to be the starting point,” she said.</p>
<p>The Australian Industry Group’s chief executive Innes Willox said the improved budget position provided “room for modest and targeted tax relief for low and middle-income households”.</p>
<p>The Australian Council of Social Service said the improved economic outlook “has been overshadowed by further cruel cuts to vital social security payments for some of the most disadvantaged groups in our community”.</p><img src="https://counter.theconversation.com/content/89292/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michelle Grattan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The government hasn’t abandoned its jobs and growth mantra in the budget update and remains optimistic despite lower growth and wages forecasts.Michelle Grattan, Professorial Fellow, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/892852017-12-17T19:21:51Z2017-12-17T19:21:51ZMorrison will deliver better news on debt in budget update<p>The 2017 budget update will show an improvement in the outlook for debt compared with projections in May, resulting in significant savings for taxpayers in interest payments in coming years.</p>
<p>Net debt is now expected to peak in 2018-19 at 19.2% of GDP. This is a 0.6 percentage point fall on the 19.8% estimated in the budget. In dollar terms it is A$11.9 billion less than the May estimate of A$375 billion.</p>
<p>Net debt at the end of the forward estimates is projected to be A$355.3 billion, compared with the earlier projection of A$366.2 billion.</p>
<p>By the end of the forward estimates gross debt is now projected to be A$23 billion less than estimated in the budget – a reduction from the earlier projected A$606 billion to A$583 billion.</p>
<p>This is 1% of GDP lower than projected in May.</p>
<p>The revisions mean taxpayers will save A$2.3 billion over the forward estimates in interest payments on the debt, with savings growing to a A$1 billion save in 2020-21.</p>
<p>By the end of a decade, gross debt is estimated to be about A$40 billion less than projected at budget time.</p>
<p>From the present financial year, the government will no longer be borrowing to pay for recurrent spending. This is a year earlier than forecast in the budget. It will be the first time since the global financial crisis that the federal government is not expected to need to borrow for recurrent spending.</p>
<p>Treasurer Scott Morrison said Monday’s update would show the government was “staying the course to keep expenditure under control and return the budget back to balance”. </p>
<p>He said the government’s “responsible budget management means we are now in a position to no longer be borrowing to pay for everyday recurrent expenditure like schools funding, Medicare and welfare, a year earlier than forecast”.</p>
<p>“We are no longer putting the equivalent of the national grocery bill on the credit card,” Morrison said.</p><img src="https://counter.theconversation.com/content/89285/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michelle Grattan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The 2017 budget update will show an improvement in the outlook for debt compared with projections in May.Michelle Grattan, Professorial Fellow, University of CanberraLicensed as Creative Commons – attribution, no derivatives.