Coalition defuses debt bomb

Josh Frydenberg will declare an end to the debt and deficit disaster the Coalition inherited.

Treasurer Josh Frydenberg, right, with Finance Minister Mathias Cormann in the courtyard at Parliament House last night. Picture: Kym Smith

Josh Frydenberg will today ­declare an end to the debt and deficit disaster the Coalition inherited from Labor six years ago, with the budget revealing that government net debt will be eliminated within a decade.

As the Treasurer prepares to put responsible economic management at the heart of the ­Coalition’s re-election pitch, The Australian understands the budget papers will forecast that the ­current net debt bill of about $370 billion will be wiped from the books by 2029-2030.

In other budget initiatives, millions of low and middle-income workers are expected to receive a boost of up to about $1000 to their end-of-year tax returns.

Mr Frydenberg is expected tonight to announce the doubling of the government’s offering last year of a $530 tax break to 4.4 million workers earning between $48,000 and $90,000.

Workers earning as little as $37,000 and as much as $126,000 will also benefit from some tax ­relief.

It will be the first time the budget has mapped out a path to eliminating the snowballing debt bill, with surpluses significantly larger than forecast beginning next year and an increase in the value of assets, including the Future Fund. Less than six months ago it was forecast the net debt bill would still be ­almost $50bn by 2029.

While the budget will remain in the red for the current financial year, the deficit will be reduced from the $5.2bn forecast in the mid-year update and mark a turnaround of more than $10bn on last year’s budget estimates.

After 12 years of deficits, the budget will also lay out significantly higher surpluses than the $30.4bn initially projected over the four-year forward estimates.

The stronger balance sheet will be used to fund expanded personal income tax cuts, including the possible increase in tax thresholds, and bring forward phase two of the existing $140bn tax plan, as well significant boosts to spending on health, education, roads and other services.

The Australian understands that a supercharged national ­infrastructure package over the next 10 years will expand the ­current $75bn program. It will ­include specific congestion-­busting projects to address concerns over population growth in Sydney and Melbourne. It is ­expected these would be funded outside the budget.

While this is Mr Frydenberg’s first budget as Treasurer, it is ­Mathias Cormann’s sixth as ­Finance Minister, equalling Nick Minchin’s record.

Scott Morrison yesterday maintained that the budget would not be an election-inspired “cash splash”, having described a $75 one-off payment for single pensioners to help with their power bills as a “dividend” of a stronger economic growth.

“Our government has the lowest growth in commonwealth public expenditure of any government in 50 years,” the Prime Minister said. “It’s been about keeping expenditure under control and it’s been about supporting the growth in the Australian economy and getting Australians off welfare and into work … In each of the budgets I handed down and the final budget outcome, they have all proved to be stronger than what I ­announced on budget night. We believe it’s only fair, it’s only fair that we share that dividend with Australians who need it most.

“Our government has the most restrained discipline of expenditure than any government, better than, over the last 50 years. That’s our record. That’s why we are in a position today to announce these types of measures.”

The Coalition on coming into office inherited a net debt from Labor of $176 billion but was also left a structural deficit that allowed the debt to snowball.

Labor has argued that its stimulus spending during the global financial crisis saved the country from recession.

Net debt — the difference ­between gross debt and the value of government assets including the Future Fund — would be significantly higher had the government not arrested Labor’s spending trajectory and made $400 billion worth of savings.

A Parliamentary Budget Office report, released on budget eve, ­attempted to blow a hole in the government’s surplus balloon, claiming that the additional ­surpluses over the medium term could be wiped out by the cost of managing the ageing population over the next decade.

The PBO said the increasing share of the population in retirement age would become a drag on the economy flowing through to a ­reduction in revenue to the government of about $36bn a year by 2028-29.

“This is larger than the projected cost of Medicare in that same year,” the report said.

Already announced budget measures include a one-off payment to pensioners to help with power bills, a $570 million national security package for ASIO and the Australian Federal Police and a $1bn addition to regional road funding.

Mr Frydenberg yesterday confirmed the government would scrap the so-called work test for people aged 65 and 66 who make voluntary contributions to their nest eggs. The proposal is understood to cost close to $70m and start from mid-2020, and comes amid a Labor plan to pare back generous tax concessions for additional super contributions.

The Treasurer said more than 50,000 older voters could take ­advantage of the plan, which would also allow retirees to make three years of non-concessional contributions in one year. These non-concessional contributions are capped at $100,000 a year.

The government will also ­increase the age limit on spousal contributions from 69 years to 74 years, as retirees over the age of 50 can’t receive nest egg contributions from someone else on their behalf.