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Federal budget review: migrants and unis hit for better bottom line

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UPDATED | Treasurer Scott Morrison is sticking to his promise of a budget surplus by mid-2021 and expects it will be almost $3 billion larger at $10.2 billion.

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And for this financial year, Morrison is forecasting a smaller deficit of $23.6 billion compared to $29.4 billion previously.

As he handed down the mid-year budget review on Monday, the treasurer said it confirmed the Turnbull government was delivering on its fiscal strategy and efforts to restore the budget to balance.

The budget position had improved by $9.3 billion over the four-year budget forecast period since May, largely driven by stronger-than-expected company tax collections and enforcement activity by the Australian Taxation Office.

Government debt will also be $23 billion lower than previously forecast over the same timeframe.

The Treasurer has found savings in the forward estimates through, among other measures, a crackdown on welfare entitlements for new migrants.

“Our economy is strengthening,” Morrison said in Canberra today.

“The drag on growth from falling mining investment has been diminishing and has nearly run its course.”

However, Treasury’s 2017/18 economic growth forecast was trimmed to 2.5 per cent, from 2.75 per cent at the May budget, reflecting modest growth in household consumption.

Growth is expected to accelerate to three per cent the year after.

Recent strong employment numbers have seen forecasts for unemployment cut further – to 5.5 per cent in 2017/18 and 5.25 per cent in 2018/19.

However, wages growth has been trimmed and is expected to weigh on income tax receipts over the next four years.

While commodity prices remain a key risk for the overall economic outlook, global growth has strengthened significantly over the course of the year, from what was anticipated in the May budget.

Morrison expects to save $1.3 billion from a hardline new approach to newly-arrived migrants, with the review today also foreshadowing a freeze in Commonwealth payments to universities and a lowered threshold for student debt repayments..

It will be three years before migrants can receive family tax benefits, paid parental leave or carer allowances.

The push to “encourage self-sufficiency” among new migrants was one of the headline savings measures announced by Morrison in today’s statement.

Vulnerable people, as well as New Zealanders who enter the country under a special visa stream, will be granted exemptions.

The Turnbull government also expects to save about $1 billion over the forward estimates by cracking down harder on family daycare payments.

Money has been set aside for a controversial plan to drug test welfare recipients, despite the trials being put on ice.

Finance Minister Mathias Cormann said the divisive drug testing regime remained Coalition policy.

“We remain committed to it and we continue to work with all non-government senators in order to a secure majority (support) for what is a very, very important welfare reform measure,” he said.

The mid-year budget update also inlucdes the Government’s latest plans to make savings from the nation’s university sector.

The Government wants to freeze per-student funding at 2017 levels for two years, use performance targets to decide whether universities will get increased funding after that, cut the HELP student loan repayment threshold to $45,000, and impose a lifetime limit on government loans students can access for vocational and tertiary study.

This third version of overhauling university funding is expected to save the budget bottom line $2.2 billion over the next four years – about $700 million less than included in May’s budget.

But its passage seems more certain than the previous package – which has been stymied in the Senate – with the bulk of the savings attached to the funding freeze, which the government says doesn’t need legislation and can’t be overturned by parliament.

“Of course, we would prefer to have … some longer-term structural reform in the sector,” Morrison said.

“That has been once again frustrated by the Labor Party. So if you can’t get to the out-point that you’re seeking to get to one way, you have to go another.”

Education Minister Simon Birmingham insists the freeze, which accounts for about $2 billion of the total savings, is not a cap on student numbers.

Universities will be able to enrol as many students as they like but for any more than the number of commonwealth-supported places they can only collect the student contribution – which covers on average 46 per cent of course costs.

From 2020, funding will be linked to population growth and performance measures, likely to include targets for completion rates and how quickly graduates find jobs.

Senate approval will be needed for other measures, including cutting the loan repayment threshold from the existing $55,000 – although the new package is an easing of the proposal in May to make people start payments once they earn $42,000.

Parliament will also have to agree to impose a lifetime cap of $104,440 on loans students can get from the government for combined university and vocational study (or $150,000 for those dong medicine, dentistry and veterinary science courses).

Birmingham says universities have benefited from rapid funding growth and achieved economies of scale that means teaching costs have dropped.

“Collectively, these measures maintain widespread access to higher education and generous funding for universities while being more affordable for taxpayers by stopping universities from effectively writing their own cheque,” he said.

Snapshot: Mid-year budget update

KEY SPENDING SINCE THE MAY BUDGET

$2.1 billion for new and changed listings on the Pharmaceutical Benefits Scheme, including for chronic lymphocytic leukaemia.

An extra $1.3 billion for the new schools funding package over four years.

Pushing ahead with an alternative university package, including a freeze on total Commonwealth Grant Scheme funding from January 1, 2018. The reforms will cost $605 million over four years (but are a saving on the previously proposed package).

$118 million for the Office of National Intelligence.

KEY SAVINGS SINCE THE MAY BUDGET

Broadening the waiting period criteria for new migrants before they can access some welfare benefits – saving $1.2 billion over four years.

A new minimum HELP loan repayment threshold of $45,000 from July 1, 2018.

Greater family day care compliance measures – saving $1 billion over four years.

Changes to after-hours doctor visits – part of a broader package saving $409 million (which will be directly reinvested into Medicare).

Ceasing the School Enrolment and Attendance Measure – saving $29.6 million over four years.

Using Family Tax Benefit lump-sum, reconciliation or instalment arrears payments to repay outstanding social security, student assistance and parental leave debts from December 2018 – saving $176.6 million.

– with AAP

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