PART IV: BUDGET PRIORITIES

The Government's budget priorities have been developed within a framework that takes account of the Government's broader economic and social objectives.

In framing its 1997-98 Budget, the Government has given priority to:

In assessing its Budget outlays priorities, the Government has placed emphasis on rationalising services, reducing duplication, better targeting programmes, achieving increased efficiencies in running government and making more effective use of market mechanisms.

Improving the efficiency and quality of existing expenditures has allowed the Government to shift resources to higher priority areas without increasing the burden on the taxpayer. The Government has maintained spending in priority areas, such as families and defence, and created the scope for some limited new policy. Such spending priorities need to be carefully assessed against the broader objectives of fiscal consolidation and the burden they place on revenue.

The Government attaches considerable importance to avoiding an undue tax burden being placed on the community. That means ensuring revenues are at the lowest levels compatible with the need to fund high priority spending and provide for the necessary fiscal consolidation. It also requires a careful assessment of revenues to ensure that anomalies in the tax system are addressed, that the revenue base is protected, and that taxpayers pay their fair share. In this Budget the Government has, for example, removed or wound back some tax incentives, as well as replacing another with a more effective outlays measure.

The following provides further detail on the Government's outlays and revenue priorities consistent with the above framework.

Increasing National Saving

As discussed in Part III, the Government's medium-term fiscal strategy is aimed at ensuring that, on average, the Commonwealth does not directly contribute to the national imbalance between saving and investment. The 1996-97 and 1997-98 Budgets provide a substantial boost to public saving which should, over time, assist in increasing national saving. In addition, the Government has introduced measures aimed at assisting private saving.

While the Government's efforts to enhance the efficiency and competitiveness of the financial system will assist private saving by increasing choice and reducing costs, the Government believes more should be done to assist householders who save. To this end, a major initiative of the 1997-98 Budget is the introduction of a broadly based savings rebate. The savings rebate represents a reward to current savers and an encouragement to potential savers. The savings rebate will assist individuals to save or invest in the form that is most suited to their needs, but is designed to give most support to saving in the form of superannuation.

The need to boost national saving is inherently linked with the need for an effective retirement incomes policy. Given the ageing of our population and the demands this will place on pension outlays, there is clearly a pressing need for more Australians to make adequate provision for their own retirement by saving through their working lives. It is also essential that the retirement incomes system be as efficient and effective as possible.

The Government believes there is considerable scope to enhance the operation of the retirement income system by making it more flexible, providing more choice, and ensuring that superannuation savings are directed towards their intended purpose, namely providing for retirement income. To this end, the Budget includes measures to improve the operation of the preservation rules and tighten access to superannuation benefits prior to retirement. At the same time, the Government will provide people with greater choice as to where they can invest their superannuation benefits. In addition, the Government is implementing simpler and more equitable social security arrangements for superannuation benefits taken on retirement, with consistent modifications to the definition of 'complying' pensions and annuities for purposes of gaining access to the higher superannuation pension reasonable benefit limits. Enhancing the retirement income system along these lines should improve Australia's national saving performance.

The Government is also providing incentives to older people to defer retirement. In the 1996-97 Budget the Government announced that from 1 July 1997, people over age 65 and up to age 70 would be able to continue to contribute to a superannuation fund or retirement savings account, provided that they maintain a bona fide link with the paid workforce. In this Budget, this initiative is complemented with the introduction of a pension bonus to individuals who defer taking an Age or Service Pension for up to five years while working.

A Fair Social Safety Net

The Government is committed to providing a fair and effective social safety net. The Government has introduced legislation to maintain the single rate of pension at 25 per cent of MTAWE. This is the first government to commit the Budget in this way and is evidence of the high priority the Government places on ensuring the adequacy of pension payments. Additional measures introduced in the 1997-98 Budget are designed to make the system fairer while maintaining assistance to those in need.

Assisting Families

The Government attaches considerable importance to relieving the financial pressures on low and middle income families with children. The Family Tax Initiative announced in the 1996-97 Budget provided additional assistance to families with children through tax measures or, in the case of low income families, through fortnightly cash payments. In the 1997-98 Budget, the Government will increase the rate of Domiciliary Nursing Care Benefit to align it with the Child Disability Allowance. The Carer Payment will also be extended to those caring for profoundly disabled children under the age of 16 and to people who are required to care for an adult as well as care for, or supervise the care of, a child. Additional funding is to be provided under the Commonwealth-State Disability Agreement for extra accommodation support for people with disabilities.

Employment and Training

Unemployment will only be reduced on a permanent basis by addressing its underlying causes. To this end, the Government has implemented industrial relations reforms and, in the last budget, introduced reforms to labour market assistance and training. The 1997-98 Budget includes further measures to assist people into employment, including through improvements to entry-level training incentive payments, which are designed to encourage employers to take on apprentices and trainees. The Work for the Dole initiative will also give unemployed people a chance to add to their experience and develop a work ethic through participation in projects which will be of lasting value to the community. In addition, funding has been allocated for a pilot scheme designed to better integrate juvenile offenders into the community.

Encouraging Small Business

A healthy small business sector is essential to strong growth in national output and employment.

To support the development of this sector the Government took steps in the 1996-97 Budget to honour its election commitment to amend the tax treatment of capital gains on the sale of a small business, where the proceeds of the sale are used to either expand an existing business or to acquire a new business. Since that time, the Government has enhanced this measure by dropping the 'like business test' and by announcing that rollover relief would also apply where a business is disposed of through the sale of shares.

The Government has also recently announced, as part of its Small Business Statement, the establishment of a Small Business Innovation Fund designed to support, in partnership with the private sector, the provision of early stage capital to new technology based firms, and to promote the development of a market for such provision.

In this Budget the Government has built on its commitment to reduce compliance costs for small business by streamlining withholding tax arrangements.

Rural Australia

In the 1997-98 Budget the Government has made allowance for substantial increases in funding over the next four years to enhance Australia's quarantine service and to restructure the delivery of meat inspection services. The Government will make a Rural Policy Statement in the second half of 1997 to provide a comprehensive response to a number of reviews of rural programmes, including in the areas of rural adjustment, drought relief and farm risk management strategies.

Environmental Initiatives

The Government has finalised its funding for the Natural Heritage Trust, with provision for total expenditure of $1.249 billion over six years from 1 July 1996. The Trust, which is the centrepiece of the Government's environment strategy, aims to stimulate investment in the conservation, repair and replenishment of Australia's environmental, agricultural and natural resources. The Trust will provide further funding for Landcare, as well as for major programmes focussing on biodiversity and the management of Australia's vegetation, rivers and coasts.

Federation Fund

The Government will establish a Federation Fund which will be used to finance major projects of national significance to mark the Centenary of Federation and contribute to the building of the infrastructure Australia needs for the coming century. These will be selected by the Commonwealth Government in consultation with State and Territory Governments on the basis that they will make a significant and ongoing contribution to Australia and the Australian economy. It has already been decided to draw on the Fund from 1998-99 onwards to finance the cost of constructing the National Museum of Australia and the associated building for the Australian Institute of Aboriginal and Torres Strait Islander Studies in Canberra.

Defending Australia

The Government is continuing its commitment to the security of the nation by quarantining Defence from the fiscal consolidation task. Defence spending is expected to remain unchanged in real terms in 1997-98 and throughout the forward estimates period.

Moreover, the Government is determined to ensure that maximum value is obtained from each dollar spent on defence. To this end it has recently announced the Defence Reform Programme (DRP) based on recommendations of the Defence Efficiency Review Committee, to streamline the operations of the Department of Defence and the Defence Forces. Efficiency savings from the DRP are to be redirected towards improving the combat effectiveness of the armed forces.

Creating an Efficient Government

In line with the Government's determination to increase the efficiency of its own operations, the Government has identified significant potential benefits from the consolidation and outsourcing of Information Technology (IT) infrastructure under a whole of Government framework. Savings in this area will be realised through economies of scale from the aggregation of services both within and across agencies, and through the strengthening of competition via an open tendering process.

Revenue Base Protection Measures

The revenue base is constantly under pressure from a range of sources, including tax minimisation and avoidance through the exploitation of provisions and 'loopholes' in legislation and through the use of new technology (such as the Internet) which can make it more difficult for transactions to be detected. (A broad discussion of such general risks to revenue is provided in Appendix A of Statement 2.) In the absence of the Government taking action, its revenue base would decline, undermining the equity and efficiency of the taxation system. Continued vigilance in minimising the scope for such unintended revenue leakage is needed.

A substantial number of the revenue measures announced in the 1997-98 Budget are aimed in part or in full at protecting the existing revenue base. Examples of such measures include changes to the system for the taxation of foreign source income; dividend streaming; franking credit trading and measures in relation to the taxation of distributions disguised as loans. Such measures will protect the tax base and address tax avoidance and minimisation.