On 18 December 2017, the federal government released the 2017/2018 Mid-Year Economic and Fiscal Outlook (MYEFO), which was jointly presented by federal treasurer, Scott Morrison and minister of finance, Mathias Cormann.
In the media release accompanying the report, the ministers announced that “Despite the many challenges faced, this is the Government’s fifth consecutive budget update with a projected return to balance in 2020-21. An underlying cash deficit of $23.6 billion is now expected in 2017-18, an improvement of $5.8 billion compared to the deficit reported at the 2017-18 Budget. The projected surplus of $10.2 billion in 20-21, is an improvement of $2.7 billion compared to May’s Budget estimate”.
Note: See later in this article for a list of superannuation-related announcements within the 2017/2018 MYEFO, and the broader analysis released by the federal government.
A big-ticket announcement in terms of the economy is that the federal government does not expect to need to borrow for recurrent spending from the 2017/2018 year, which the government says is a year earlier than was expected at the time of the May 2017 Federal Budget, and the first time since the Global Financial Crisis.
Net debt however is still high, peaking at 19.2% of GDP (gross domestic product) in the 2018/2019 year, the government expects net debt to stabilise at decreased levels over the forward estimates (compared to what was announced in the May 2017 Federal Budget), falling to 17,2% of GDP in the 2020/2021 year.
Note: ‘Forward estimates’ for the purposes of the 2017 Federal Budget, and for the purposes of the 2017/2018 MYEFO, cover the financial years 2017/2018, 2018/2019, 2019/2020 and 2020/2021. Technically speaking, the 2017/2018 year is known as the Budget year, and the three following years are the forward estimates.
According to the overview section of the 2017/2018 MYEFO: “The Government is continuing to implement its plan to boost economic growth, create jobs, support small businesses and reduce the cost of living pressures faced by Australians. This plan will continue to support the economy as it transitions to broader-based growth.
“…Australia’s economy has now completed its 26th year of economic growth and is expected to grow at a solid pace in 2017-18 as the drag on growth from falling mining investment nears completion. Support to growth is also expected from non-mining business investment, household consumption, public final demand and exports. Real GDP is forecast to grow by 2½ per cent in 2017-18 and 3 per cent in 2018-19 after growth of 2.0 per cent was achieved in 2016-17.”
Outlined below is a quick summary of the main economic and financial indicators and a link to the full 2017/2018 MYEFO is at the end of the article. Immediately below is a list of super and retirement-related policies that have been announced since the 2017/2018 Federal Budget.
Surprise announcement! Although not strictly related to superannuation (these elected Australians however do make the super laws), you may be interested in knowing that the federal government is providing $38.1 million over 4 years from the 2017/2018 year to help manage the expenses of parliamentarians. Note this is not expenditure on the MPs, but money to help manage the money that is spent on the MPs. The $38.1 million will be used to “establish an integrated ICT solution to manage and report the expenses of current and former parliamentarians and their staff…”. We have just over 220 current MPs, and an unknown number of former MPs (or spouses if the MP has died), and that seems a lot of money to upgrade a system for a small number of Australians who will benefit from the upgrade. Just for illustration, we are currently in our 45th parliament, and we will assume all MPs up to the 19th parliament (1951-1953) are no longer alive and nor are their spouses (considering most MPs at that time were much older than now). To be conservative, we will also assume that each parliament since then had 220 MPs, and they changed each election, even though earlier parliaments were smaller, and many MPs sat multiple terms. Conservatively, the federal government is spending an additional $7,000 or so on each living past and present MP (roughly 5,700 based on our assumptions, but highly likely to be fewer) to further manage their expenses, in addition to the current costs of managing the expenses of MPs, and in addition to the staffing, travel and office costs of each past and present MP. I would guess that the additional cost is closer to $10,000 each for past and present MPs, just to manage their expenses. What then is the government currently spending on the management of MP expenses?
Superannuation policies since 2017/2018 Federal Budget
The electorate is still grappling with the radical changes to the super rules which took effect from 1 July 2017 (see SuperGuide article Latest superannuation changes: 2017/2018 guide), and the January 2017 Age Pension changes (see SuperGuide article Age Pension: 330,000 Australians lose entitlements since January 2017 ).
Even so, the 2017/2018 MYEFO contains several superannuation-related new policies, hidden within the detail of the report, and that may be of interest to readers, including the following:
- Closure of salary sacrifice loophole. SuperGuide has campaigned for this change for several years. Finally, from 1 July 2018, the federal government will close the loophole where some employers reduce an employee’s Superannuation Guarantee contributions, when an employee makes salary sacrifice super contributions. In these instances, an employer reduces the earnings base for SG calculations, based on the reduced taxable salary as a result of a salary sacrifice arrangement (for more information on this practice, see SuperGuide article Superannuation Guarantee: Many Aussies miss out on SG increase).
- Superannuation Guarantee non-compliance taskforce. Another long-term campaign by SuperGuide (and lobby groups in the super industry), has again reaped a positive outcome. The federal government is providing $20.9 million in funding over the forward estimates to establish a taskforce to “improve employer compliance with their SG obligations, encouraging on-time full payment of employee superannuation entitlements.” The government hopes to recoup $67.7 million in revenue over the forward estimates from the work of the taskforce. Several other SG-related measures were also announced to support the taskforce and ongoing employer SG compliance (expected to cost nearly $100 million, although tax receipts are expected to increase by a total of $131 million over the forward estimates . See the next 4 bullets below. (For background on why the taskforce is necessary, see SuperGuide article Unpaid super: Should the ATO chase more slack employers?).
- Modernisation of ATO payroll and superannuation reporting system, and will also help collect information for event-based reporting. The federal government will provide $63.9 million over the forward estimates to help modernise ATO’s reporting system for payroll and super, and over the same period this measure is estimated to add $70.8 million in revenue. Single Touch Payroll reported is to be extended to small employers (fewer than 20 employees) intended to streamline employer PAYG and SG obligations. The funding will also assist the super prudential regulator (APRA) move to event-based reporting of SG contributions to the ATO by 1 July 2019 (with transitional implementation during the 2018/2019 year).
- Recovery of unpaid SG contributions. The federal government is providing $7.5 million to the ATO to improve processes for recovering unpaid SG, and from 1 July 2018, the federal government will also strengthen the use of director penalties to minimise the chances of a business owner avoid personal liability for his or her company’s tax obligations. The ATO’s ability to collect tax liabilities using security deposits will also be strengthened (through the use of court orders compelling compliance with a security deposit). (For more information about the SG rules, see SuperGuide articles Superannuation and employees: 10 facts about your super entitlements and Unpaid super: Should the ATO chase more slack employers?.)
- Better ATO communication to employees about unpaid super. The federal government will amend the disclosure provisions in the tax law to ensure the ATO communicates more effectively with affected Australians who have not been paid their SG contributions: “The ATO can keep employees better informed about the compliance and debt recovery activities for unpaid SG that the ATO is undertaking on employees’ behalf”, including steps the ATO is taking to recover the unpaid SG (even where an employee has not made a complaint to the ATO. (For more information about how to find out if your employer has paid your SG see SuperGuide article Super for beginners, part 18: My employer hasn’t paid my SG. What can I do?.)
- Harsher penalties for slack employers in terms of unpaid super. Employers who intentionally don’t pay employee SG obligations will be hit with court-ordered penalties, while ignorant employers will be directed to undertake education and training. For more information on the scale of the unpaid super problem, see SuperGuide article Unpaid super: Should the ATO chase more slack employers?
- Royal Commission into misconduct in the Banking, Superannuation and Financial Services Industry. The federal government is providing $75 million over 2 years ($25 million in 2017/2018 year, and $50 million in 2018/2019 year) for a royal commission into the conduct of “banks, insurers, financial services providers and superannuation funds (not including self-managed superannuation funds). It will also how well equipped regulators are to identify and address misconduct”. (For information about the royal commission, see SuperGuide article Financial Services Royal Commission: How will it affect your super benefits?).
- Funding for handling superannuation complaints. The federal government is providing $1.8 million to set up an expert reference panel to assist with the establishment of the Australian Financial Complaints Authority (AFCA), which will become the “one-stop shop financial dispute resolution scheme” from 1 July 2018 (for more information about AFCA, see SuperGuide article New body to handle super complaints from July 2018). The federal government is also providing the Superannuation Complaints Tribunal (SCT) with $9.5 million over 3 years from the 2017/2018 year to deal with the backlog of existing complaints up to 30 June 2018, by 30 June 2020. The SCT funding will be sourced through an increase in the APRA levy paid by super funds.
- Expansion of Financial Advisers Register. The federal government is providing $3.5 million to the Australian Securities and Investments Commission (ASIC) over 3 years from the 2017/2018 year, which includes $1.5 million in capital funding, to expand the online Financial Advisers Register. The improved FAR will include additional information about advisers. Note that ASIC will not be getting any cash, but will have to find this $3.5 million from existing funding. (For more information about the Financial Advisers Register, see SuperGuide article Seeking advice? Financial Advisers Register is a starting point.)
- Treasury’s budget to be cut by $45 million. Over the 4 years from 2017/2018 to 2020/2021, the federal government is cutting the budget of the Department of Treasury.
- Housing affordability measures. The 2017/2018 MYEFO also mentioned the First Home Super Saver Scheme (see SuperGuide article 10-point guide to First Home Super Saver Scheme) and the Downsizing and super policy (see SuperGuide article Contributing super by downsizing your home: 10-point guide), in relation to housing affordability but those measures were announced in the May 2017 Federal Budget, although they became law during the 2017/2018 financial year (December 2017).
Important: In the 2015/2016 MYEFO, the government announced changes to the Income Support for People with Disability (DSP), triggering cuts (savings) of $201 million in 2015/2016 year, and $756 million over 4 years to 2018/2019 year). In the 2015/2016 MYEFO, the government also announced cuts to the Income Support for Carers triggering savings of $192 million for 2015/2016 year and a whopping $1.2 billion over 4 years to 2018/2019 year. In the 2017/2018 MYEFO, the government announced that some “unlegislated components” of these measures will not proceeding, at a net cost to the Federal Budget of $581 million over 4 years from the 2017/2018 year. For the specifics of these measures, see the MYEFO documents for the respective years (by clicking here).
Government’s 2017/2018 MYEFO focus on essential services
The federal government’s key economic message from the 2017/2018 MYEFO seems to be that “it is taking action to guarantee the essential services relied on by Australians”. The MYEFO lists the following measures as evidence of this action:
- Transport infrastructure. A total spend of $75 billion using a combination of grant funding, loans and equity investments. Since the May 2017 Federal Budget, the federal government has provided an extra $439 million for regional rail projects in Victoria (a total of $1.43 billion), $80 million to Macquarie Park Transport Interchange in Sydney, and $5.3 billion for Western Sydney Airport (which was announced and funded for in the May 2017 Federal Budget)
- National Energy Guarantee (NEG). A clever acronym, the federal government is promising to deliver “affordable, reliable and sustainable power to households and businesses”. The Australian Energy Regulator has received an additional $67.4 million in funding, and the ACCC has been asked to review the energy sector. The Snowy Hydro scheme will provide enough additional energy to power 500,000 homes.
- Housing affordability. New legislation to support a new National Housing and Homelessness Agreement between the federal government and the states. Also, from 1 July 2018, the establishment of the National Housing, Finance and Investment Corporation (NHFIC). The NHFIC will manage the $1 billion National Housing Infrastructure Facility (NHIF) and an affordable housing bond aggregator that will pool the financing needs of eligible registered Community Housing Providers.
- Health care. On 1 July 2017, the Medicare Guarantee Fund was established and seed-funded with $33.8 billion to finance the Medicare Benefits Schedule (MBS) and the Pharmaceutical Benefits Scheme (PBS). In the 2017/2018 MYEFO, the government also provided $2.1 billion for new medicines on the PBS, and $150 million on medical research.
- National Disability Insurance Scheme (NDIS). In the May 2017 Federal Budget, the government announced that the Medicare levy would increase to 2.5% from 2.0%, from 1 July 2019. From 1 July 2019, 20% of the revenue raised by the Medicare levy will be credited (rather than paid into) to the NDIS Savings Fund Special Account. In December 2017, Western Australia joined the NDIS.
- The federal government is providing $23.5 billion of additional funding over 10 years (to 2027).
- Harsher treatment of migrants for certain family payment, and students for education loan repayments.
Note: The 2017/2018 MYEFO also notes that the major bank levy (raising $5.5 billion over the forward estimates), and pauses in the indexation rates for the Family Tax Benefit A & B (raising $1.9 billion over the forward estimates) have assisted with reducing the budget deficit.
Updated fiscal outlook
In the 2017/2018 MYEFO, the federal government reported the following fiscal indicators:
- Cash deficit.Cash deficit is expected to fall to $23.6 billion (1.3% of GDP) during the 2017/2018 year, from $36.5 billion (2.1% of GDP) during the 2016/2017 year. In the 2017/2018 MYEFO, the government predicts the cash deficit will return to a surplus of $10.2 billion (0.5% of GDP) during the 2020/2021 year. In the 2016/2017 MYEFO, the government predicted that the cash deficit would fall to $10 billion (0.5% of GDP) a year earlier, by the 2019/2020 year.
- Net debt.Net debt is expected to peak at 19.2% of GDP during the 2018/2019 year, and then reduce to 17.2% of GDP during the 2020/2021 year ($10.9 billion less than what was predicted in the May 2017 Federal Budget). In the 2016/2017 MYEFO, the government predicts that net debt with peak at 19% of GDP in the 2018/2019 year, and then fall over the medium term to roughly 10% of GDP (clearly estimates were out-of-whack last year). In the 2015/2016 MYEFO, the government said net debt would peak at 18.5% of GDP in the 2017/2018 year.
- Government payments.Government payments have fallen by a total of $6.5 billion over the forward estimates since the May 2017 Federal Budget. The government predicts that government payments as a share of GDP will be 25.2% of GDP for the 2017/2018 year, and reduce to 24.9% o9f GDP by 2020/2021. Real growth in payments over the forward estimates is expected to be 1.9% per annum on average.
- Total receipts.Due to improved company tax forecasts and ATO enforcement activity, total receipts have been revised upwards by $3.6 billion for the 2017/2018 year, and up $2.8 billion over the 4 years to 2020/2021, compared with estimates predicted in the 2017/2018 Federal Budget. Income tax receipts are expected to be lower than forecast in the May 2017 Federal Budget.
Note: The transition to the full National Disability Insurance Scheme began on 1 July 2016 and will be fully rolled out by July 2019 (for more information, see SuperGuide article Medicare Levy increase will help pay for NDIS).
Important: According to the 2016/2017 MYEFO, the Future Fund becomes available to meet the federal government’s superannuation liabilities from the 2019/2010 year. We could not find an update on this in the 2017/2018 MYEFO.
Updated economic outlook
In the 2017/2018 MYEFO, the federal government reported the following economic indicators:
- Higher rate of real GDP growth, although lower than predicted last year.Real GDP growth is predicted to increase, with real GDP expected to grow by 2.5% during 2017/2018 year, and 3% during 2018/2019 year (compared with 2.0% GDP growth during 2016/2017 year). In the 2016/2017 MYEFO however, the government predicted real GDP would grow by 2.75% during the 2017/2018 year, and 3.0% for the 2018/2019 year, as the impact from a drop in mining investment subsides, which means the government has downgraded GDP growth rate forecasts. Nominal GDP growth (before taking into account inflation) is expected to be 3.5% during the 2017/2018 year, and 4.0% for the 2018/2019 year, which is lower than predicted in the May 2017 Federal Budget, reflecting low wages growth and static prices.
- World economic growth to accelerated. International growth is expected to be more broad-based, and has accelerated more than forecast in the 2017/2018 Federal Budget.
- Underlying cash balance.Since the 2017/2018 Federal Budget, the underlying cash balance has improved by $9.3 billion over the forward estimates.
- Rate of inflation to increase. According to the 2017/2018 MYEFO, the consumer price index (rate of inflation) was 1.9% for the 2016/2017 year, and is forecast to be 2% for 2017/2018 and 2.25% for the 2018/2019 year. Looking further ahead the federal government’s projections point at CPI increase of 2.5% for each of the 2019/2020 and 2020/2021 years.
- Wage prices to increase. After a sluggish period for wages growth, and 1.9% wages growth for the 2016/2017 year, workers can look forward to some pay rises. The federal government forecasts the wages price index (wages growth) to increase by 2.25% for the 2017/2018 year, 2.75% for the 2018/2019 year and projects wages to grow by 3.25% in the 2019/2020 year, and 3.5% in the 2020/2021 year.
- Steady employment growth but slower. Employment growth was 1.9% for the 2016/2017 year, and is forecast to slow to 1.75% for the 2017/2018 year, and 1.5% for the 2018/2019 year. The federal government projects that employment growth will be 1.5% for each of the 2019/2020 and 2020/2021 years.
For more information on the full 2017/2018 MYEFO report, click here .