MNI Australia Budget Gives Tax Relief To H'Holds,More Spending

--Tax Relief Will Help Household Consumption, Support Growth

--Wage Price Seen Accelerating Despite Jobless Rate Not Declining Below 5%

-By Sophia Rodrigues

     SYDNEY (MNI) - Australia's Treasurer Scott Morrison announced tax relief

for middle and lower income earners through a new tax offset as the government

used its better-than-expected budget position to provide boost to household

income.

     The tax relief to households, together with more funding for older

Australians, could be considered a pitch to voters ahead of federal elections

due by May next year but it would also help the economy by supporting

consumption at a time when households are struggling with high debt and low wage

growth.

     In the 2018-19 budget delivered Tuesday, Morrison said up to A$530 will be

delivered to middle and lower income earners through a new tax offset for the

2018-19, 2020-21 and 2021-12 income years. The government also announced the top

threshold of the 32.5% tax bracket will be further increased to A$90,000 from

July 1.

     From 2022-23, the benefits of the tax offset will be locked in by

increasing the top threshold of the 19%tax bracket from A$37,000 to A$41,000 and

increasing the low income tax offset from A$445 to A$645. In addition, the top

threshold of the 32.5% bracket will be further increased to A$120,000, ensuring

that the average income earner remains in this middle tax bracket.

     For older Australians, the government has announced increase in number of

home care places by 14,000 over four years at a cost of A$1.6 billion. There

will also be A$146 million extra spending to improve access to aged care

services in rural, regional and remote area, and A$83 million for increased

support for mental health services for older Australians.

     The government is continuing with its A$75 billion rolling infrastructure

plan but announced an additional A$1.0 billion Urban Congestion Fund to support

projects at a state level to fix pinch points and improve traffic flow and

safety in the cities.

     There will also be a A$3.5 billion "Roads of Strategic Importance"

initiative to upgrade key freight routes. 

     The budget showed the deficit for 2018-19 improving to A$14.5 billion from

previously estimated A$20.5 billion. For 2019-20, the budget is forecasting a

surplus of A$2.2 billion from previously forecast deficit of A$2.6 billion.

     Interestingly, the budget is forecasting the unemployment rate to fall to

just 5.25% in 2018-19 and stay there until 2020-21, before declining to 5.0%.

This means the jobless rate is not expected to decline below the currently

estimated full employment or NAIRU of 5.0% in the next four years. Yet, the wage

price index is forecast to rose to 2.75% in 2018-19 and to 3.5% by 2020-21.

     Below are the key numbers from the budget.

     Figures in brackets refer to numbers from the mid-year economic and fiscal

outlook (MYEFO) published in December.

                      2017-18     2018-19      2019-20      2020-21      2021-22

--------------------------------------------------------------------------------

                      (In A$,     (In A$,      (In A$,      (In A$,      (In A$,

                        blns)       blns)        blns)        blns)        blns)

Underlying Cash

Balance                 -18.2       -14.5         +2.2        +11.0        +16.6

                      (-23.6)     (-20.5)       (-2.6)      (+10.2)

Operating Balance       -12.6        -2.4         +8.6        +19.6        +27.4

                     (-18.2))      (-9.9)       (+6.8)      (+20.9)

     Below are key assumptions in the budget:

                   2017-18  2018-19  2019-20  2020-21  2021-22

--------------------------------------------------------------

Real GDP            +2.75%    +3.0%    +3.0%    +3.0%    +3.0%

                   (+2.5%)   (+3.0)   (+3.0)   (+3.0)

Nominal GDP         +4.25%   +3.75%   +4.75%    +4.5%    +4.5%

                   (+3.5%)  (+4.0%)  (+4.5%)  (+4.75)

Unemployment Rate     5.5%    5.25%    5.25%    5.25%     5.0%

                    (5.5%)  (5.25%)  (5.25%)   (5.25)

Wage Price Index     2.25%    2.75%    3.25%     3.5%     3.5%

                    (2.25)   (2.75)   (3.25)    (3.5)

--MNI Sydney Bureau; tel: +61 2-9716-5467; email: sophia.rodrigues@marketnews.com

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