Budget war chest for school, hospital funds in play

Scott Morrison will use his budget war chest to ­deliver extra funding for schools, hospitals and pharmaceutical ­benefits.

Scott Morrison arrives for question time yesterday. Picture: Gary Ramage

Scott Morrison will use his pre-election budget war chest to ­deliver extra funding for schools, hospitals and pharmaceutical ­benefits, in a move to claim back political leverage from Labor ahead of delivering the nation’s first surplus in a decade.

Ratings agencies yesterday welcomed the Prime Minister’s pledge to balance the books by April. Moody’s said it was ­surprised by the speed of the ­turnaround, while analysts predicted Treasury would be able to cut ­borrowing this year by as much as $10 billion following the budget update.

Net debt, which reached $355bn in October, is close to its peak and is expected to end the ­financial year well below $350bn.

Booming commodity prices and strong employment growth are expected to break the cycle of revenue downgrades that have dogged the Coalition since it was elected in September 2013.

Mr Morrison, treasurer for three years under Malcolm Turnbull, declared the government would be able to fund increased services without raising taxes in the budget, which has been brought forward ahead of a May election.

“Our plan for a stronger economy is working,” Mr Morrison told parliament. “That means we can invest in the essential services that Australians rely on.”

This would include an ­additional $37bn for schools over the next 10 years and an additional $30bn for hospitals over the next five years. “Some $7bn has been made available to support our farmers in drought and rural and regional communities,” Mr Morrison added.

The Prime Minister also highlighted 1900 new listings to the Pharmaceutical Benefits Scheme and an additional $1bn invested in aged care. He attacked Labor as the party of higher taxes, adding: “Those opposite haven’t delivered a surplus budget from the year Taylor Swift was born, in 1989.”

Although opinion polls have consistently rated the Coalition above Labor on economic management, the government has not been able to convert that to overall support.

Labor has committed to a range of tax policies, including clamps on negative gearing, capital gains, dividend imputation and family trusts over the past three years, ­expecting the budget would struggle to return to solid surpluses. It is likely to unveil a series of funding commitments in health, education and infrastructure in the lead-up to next year’s election.

The improved budget position has been acknowledged by the credit rating agencies, but financial markets anticipate that some of the lift in revenue will be channelled into fresh commitments ahead of next year’s election. ANZ senior rates strategist Martin Whetton said: “The ­temptation to spend a bit of that money would remain in place ahead of a closely fought election, and therefore the amount of the reduction in borrowing needs would be diluted.”

Moody’s sovereign analyst Martin Petch said yesterday the government had reached “an improved position faster than we, or most other people, were expecting”. “We’ve seen the fruit of strong employment growth, commodity prices that are better than expected and corporate taxes doing well,” he said.

Standard & Poor’s, which has removed its threat to ­downgrade Australia’s AAA credit rating, also welcomed the ­improvement.

Financial markets believe the improvement in the government’s finances will allow Treasury to cut back the pace of its borrowing program, with debt from next year onwards simply needed to roll over existing borrowings and improve the repayment schedule.

Mr Whetton said the borrowing program would be revised after the mid-year budget update but was likely to show total borrowing this year of about $60bn, down from $70bn at budget time.

Mr Morrison is travelling to the G20 leaders’ summit in Argentina today where government debt will be discussed. The Financial Stability Board, the international supervisory body created by the G20 in the aftermath of the global financial crisis, said yesterday the financial system was more resilient than before the downturn, but sovereign debt posed a serious threat to stability. In a report released to G20 leaders overnight, it said a decade of low interest rates had left financial institutions and markets vulnerable to potential economic and financial risks from adverse market developments. “High sovereign, corporate and household debt levels in many parts of the world could expose the financial system to significant risk,” it said.