The Federal Budget was a fairly unremarkable mix of the politically expedient and the overly optimistic. Treasury forecasts of budget surpluses — in fact, Treasury forecasts generally — have proven to be speculative at best. So the forecast that the budget will have a $29.4 billion deficit next year but return to a $7.4 billion surplus four years later should be taken as the blindfolded punt it is.
True, bracket creep will inexorably lead to higher revenues. Income tax receipts are expected to rise by 8 per cent this financial year and to be a third higher by 2020/21. But there will be a deterioration of the projected deficits in the short term and the assumption that wage growth will increase from the current 2 per cent to 3.75 per cent is courageous, to say the least.
Of far greater interest is the $6.2 billion the government will raise through a 0.06 per cent levy on bank liabilities. This is intriguing, and not just because it shows how out of favour banks have become, in large part because of the seminal exposes by journalist Adele Ferguson into their rapacious practices.
It is also, in effect, a de facto tax on property lending — something of a counterbalance to the negative gearing and capital gains tax breaks on property lending, which the Grattan Institute estimates allow investors to reduce and defer personal income tax, at an annual cost of $11.7 billion to the public purse. That $11.7 billion equates with over 5 per cent of the income tax expected to be collected in 2017-2018.
The reason it is a tax on property lending is that nearly all the banks' loans are either mortgages for housing, or business loans secured with property. Of course the banks will pass all the extra cost on to their customers, so it becomes a tax on borrowers.
To give some idea of the aggregate picture, Australia's GDP is $1.34 trillion. According to Corelogic, the value of Australia's housing market is approaching $7 trillion. In aggregate, the housing market is not highly leveraged. According to Domain, last year the amount of money Australia's home buyers owe their banks rose above $1 trillion (the equivalent of a debt-to-asset ratio of about 17 per cent).
But what it means is that the local asset markets are heavily skewed toward housing, which is inherently unproductive, because the value of such assets is principally in the land, not