Budget Speak 101
Treasurer Joe Hockey is set to pop his Federal Budget cherry tonight, and even he has admitted the outcomes will require sacrifices from everyone. So, will you understand what’s going down and how it’s going to impact you?
Budget time sees more terms and phrases thrown about than cheesy smiles at a political fundraiser. But what do they actually mean? Do you get a little lost when the jargon starts tumbling from the pollies’ gobs? Or do just not really care what’s being said but want to pretend you understand what’s happening this week when that one mate starts talking your ear off about the “unfair cuts and stupid new taxes…”. Whatever the reason, here’s a Budget Speak cheat sheet – ten common terms you’re set to hear over and again in the coming weeks, along with a simple definition.
Quite simply, a deficit is created when a government spends more than it receives in a financial year. This year’s deficit is sitting at around $50 billion.
The Canberra suits often say that changes, taxes and cuts need to happen to “get the budget to surplus”. This cheeky little phrase is often interpreted to mean they are making changes in order to clear the government’s overall debt. It does not! It simply means the politicians are trying to clear the deficit of that year. When the deficit isn’t fully cleared in a year (this is common!), the leftovers are added to the existing stock of government debt. Right now, this sits at at a cool $319 billion!
If the government raises more cash in a year (from taxes etc.) than the amount it spends, they have a surplus. Please note: this does not happen very often. The government likes to spend!
When the government doesn’t have enough moula to fund its spending, it’s got to “phone a friend” and borrow the difference from financial markets and investors. Every time it does this, the government debt increases. The longer it sits there, the more interest it owes and the higher the debt. The government can only ever begin to pay off a debt when it runs a surplus.
Imagine you had a $20K debt but also owned a car and a new MacBook Air. If you desperately needed to pay off your debt you could sell your car and computer and put the money towards the repayments. This is exactly the same for the government. It owns many assets and if it needs to, it can sell off some of these to pay off its debts. So, what is net debt? It’s simply the difference between the value of the government’s overall debt and the value of its assets.
THE FORWARD ESTIMATES
Forward estimates are released along with every budget. They are designed to predict the revenue and expenditure of the government for the next four years. It’s basically gives the public a look at the government’s longer-term spending plan.
The debt levy is a confirmed inclusion of the 2014 budget. It is expected to target people earning $180,000+, taking an extra 1-2% of their annual income. The government will use the money from this “levy” (a softer word for tax) to start paying back debt. Prime Minister Tony Abbott has (tried to) reassure the public that he will be paying this levy too.
All welfare payments are “indexed” in some way. So, what’s that mean? Basically, in order to keep up with the growth of the economy, these payments increase in value over time. But not all are indexed the same – some are linked to inflation, others are linked to things such as wages, which generally increases faster than inflation. Indexing all payments to inflation allows the government to save money.
At the moment, all employers must put 9% of an employee’s income into a super fund. This super is taxed at 15%, up until 60 years of age (after that it’s tax-free). The superannuation concessions let peeps add more $$ to their fund and still be taxed at 15% (this is heaps lower than most tax rates).
“THE AGE OF ENTITLEMENT IS OVER”
A message Treasurer Joe Hockey continues to declare to the world. And, if the predictions are anything to go by, this will be the thinking and logic behind tonight’s budget.