THE OVERARCHING theme of the first Turnbull government federal budget is support of an economy in transition.
The budget includes a series of policies and measures designed to facilitate the transition from the mining investment boom to a stronger and more diversified economy.
While it acknowledges the resources sector will continue to play an important role in Australia’s economy, the focus is all about broadening opportunities for other sectors.
Growth is expected to shift to what the government calls more ‘employment intensive sectors’. There are specific measures for smart, high-value and export-focused industries and also targeted support for smaller businesses.
There’s a big focus on economic growth drivers, including innovation, investment, critical infrastructure and trade. All of these are positive messages for Australia’s future economic growth and as major players in the economy, positive signals for the energy and resources sector.
The government also announced the creation of ‘industry growth centres’ to identify opportunities to reduce regulatory burden, increase collaboration, improve engagement with international markets, and enhance workforce skills.
Centres will be established for advanced manufacturing, cyber security, food and agribusiness, medical technologies and pharmaceuticals, mining equipment, technology and services (METS), and oil, gas and energy resources.
There’s also messaging on regulatory reform. The new Regulatory Reform Agenda will embrace more complex reforms that encourage innovation and competition, and enhance productivity and economic growth. Government will provide additional funding to ‘systematically review regulatory regimes’.
To transition to a broader-based economy, the government has a three-point plan of attack – delivery of the ‘jobs and growth’ plan, tax reform and a balanced budget.
The jobs and growth plan involves a range of initiatives including the $1.1 billion National Science & Innovation agenda, building a high-tech modern defence industry, various youth employment schemes and for energy and resources, ‘opening up more export opportunities through trade agreements’.
This presents a chance for Australian firms to tap into the Asia growth story, particularly given the rising Asian middle class. The idea is positioning Australia as a ‘go to’ destination for creating export platforms as strategic entry points into North Asian markets.
Growth in Australia’s major trading partners is expected to stay higher than global growth, reflecting Australia’s trade links to East Asia. In terms of innovation, the industry-led Cyber Security Growth Centre is expected to create opportunities for businesses to grow and strengthen Australia’s cyber security industry.
Data61, a merger of National ICT Australia and CSIRO’s digital research unit, will create Australia’s largest data innovation group, develop cutting edge technology and improve industry cyber security.
Tax reform involves a number of measures addressing fairness in Australia’s tax system.
The 10 year Enterprise Tax Plan is designed to drive economic growth, stimulate investment and create jobs. Over 10 years the government will back in investment by decreasing the tax rate on all companies to 25 per cent by 2026-2027 making Australian companies more internationally competitive.
The government is also focused on tax measures to help small businesses which may prove welcome news for the junior resources companies and the smaller METS players.
There will be tax cuts for businesses with a turnover of less than $10 million on 1 July.
Balancing the budget involves various measures designed to protect public finances and reduce Australia’s long-term debt burden.
With GDP growth impacted by the end of the mining boom and weak wage growth, the fiscal challenge is considerable. There is need for fiscal restraint in order to balance the budget, reduce debt and minimise the tax burden.
Spending will need to be efficient and ‘well-targeted’ with the budget expected to return to balance by 2020-2021.
The biggest energy and resources signal is the planned infrastructure investment that involves ‘responsibly investing in infrastructure like roads, rail, dams and public transport’.
The government is investing a record $50 billion in infrastructure between 2013-2014 and 2019-2020, albeit infrastructure spending as a proportion of GDP is broadly consistent with historical trends.
A large part of this infrastructure spend is transport focused, but also the $2 billion National Water Infrastructure Loan Facility.
Designed to support major water infrastructure projects over the next 10 years and due to begin in July, the funding will help get high priority projects up and running through providing concessional loans to the states and territories.
In addition, a further $9.5 million will be allocated in 2016-2017 for the National Water Infrastructure Development Fund to finance feasibility studies in northern Australia.
Two major energy and resources projects are also outlined in the Federal budget papers:
- National Resources Development Strategy – an A$100 million data acquisition and analysis program involving geographical modelling of mineral, petroleum and groundwater resources in targeted areas across northern Australia and South Australia. By helping identify new greenfield sites, the overall objective is to stimulate a new wave of exploration activity in Australia.
- Clean and Renewable Energy Innovation – $1 billion of Clean Energy Finance Corporation funding will be allocated over 10 years to create a Clean Energy Innovation Fund. This will be jointly managed with ARENA. This fund will provide financing (both debt and equity) to support the commercialisation of clean energy technologies.