Whether running immigration or being PM, Morrison fiddles the booksJan 6, 2022
Using income tax receipts to offset departmental spending undermines good government. But that doesn’t faze this government.
In the 2021-22 Mid-Year Economic and Fiscal Outlook (MYEFO), there are three measures that overturn 30 years of accepted budget practice to not use second round income tax receipts to offset departmental spending measures.
This is not some arcane issue solely of interest to budget process boffins. It will fundamentally impact how immigration policy, and potentially other policies, are developed in Australia. But first, a little bit of relevant history.
In 1989-90, I was in the Department of Finance when my small section first developed a simple spreadsheet model to estimate the net impact of different categories of migration on the Commonwealth Budget.
The purpose of the model was to inform Cabinet’s consideration of the migration program.
In developing this model, it was agreed between Treasury, Finance and Immigration that these net estimates should never be used for the purpose of claiming offsets to departmental spending proposals. That agreement held fast until Scott Morrison became Immigration Minister.
In the 2014 Budget, he used forecast income tax receipts paid by new migrants to meet his portfolio’s budget savings target. For some extraordinary reason, he was able to convince then treasurer Joe Hockey to accept this – most likely against strong advice from Treasury.
Some years later, Morrison as Prime Minister cut the program to 160,000 per annum in his so-called Population Plan.
Given the budget principle he had established in 2014, that should have meant he would have to find the offsetting savings for the net decline in tax revenue from fewer migrants, particularly fewer migrants in the skill stream.
But Morrison being Morrison, he somehow convinced Treasurer Josh Frydenberg that the budget rule Morrison established in 2014 to his advantage should not be used when it was to his and Peter Dutton’s disadvantage – Dutton being Home Affairs minister at the time.
I didn’t actually mind that second outcome as I thought it meant the silly idea of using second round tax receipts to offset departmental spending proposals was dead.
But the 2021-22 MYEFO proved my assumption wrong as it contains three measures that much more directly use second round tax revenue paid by migrants to offset departmental spending proposals.
The first of the three measures is Reopening the Borders and appears under the Department of Home Affairs (DHA).
Reopening the Borders
|Department of the Treasury||..||$5.0 million||$30.0 million||$45.0 million|
|Total Payments||$13.6 million||$5.0 million||$30.0 million||$45.0 million|
|..||$35.0 million||$15.0 million||$10.0 million|
|Australian Tax Office||..||$30.0 million||$135.0 million||$190.0 million|
|Total Receipts||..||$65.0 million||$150.0 million||$200 million|
Source: 2021-22 MYEFO, Page 259
This measure is described as follows:
“The Government will provide $14.7 million in 2021-22 to implement changes to visa settings and facilitate inbound international travel to support economic recovery as the border reopens. Funding includes:
- $13.6 million in 2021-22 to facilitate inbound movement of international travellers
- $1.1 million in 2021-22 for changes to visa settings to retain and maximise economic participation for onshore visa holders, encourage offshore priority migrants to return to Australia and deliver concessions for priority visa holders impacted by COVID-19 travel restrictions”.
The above description is suitably vague to give the reader very little idea what the money is actually going to be used for. It is possible the money will be used to meet the costs of checking the vaccination and Covid status of visa holders to Australia but we really don’t know.
There is even less information on the allocation of $80 million over three years to the Treasury Department. What ongoing and growing role Treasury will be playing in reopening the borders is a mystery unless the measure relates to funding for the ATO itself – but if that is the case, why not label the measure accordingly?
The increase in DHA receipts is either an increase in visa applications generating revenue from the visa application charge; an increase in visa application fee levels or introduction of new visa streams that generate additional revenue. The first of these is unlikely as that would normally be described as an estimates variation and could not be used as an offset to new spending.
More likely it relates to the new Temporary Graduate visa stream scheduled for introduction on July 1, 2022 or other new visa streams.
The really eye-popping line is the additional income tax and GST to be collected by the ATO. The amounts are large but not so large as to reflect the full amount of income tax and GST paid by all new migrants and temporary entrants to enter Australia over the next few years.
The line must relate to some narrower group of migrants and/or temporary entrants. That is another mystery.
The amount estimated to be collected is well in excess of the combined costs of the measure for DHA and Treasury.
If these tax receipts have been allowed to be used as an offset, it is likely the balance of tax receipts collected under this measure have been used to offset other measures listed under DHA such as the Fixed Wing Civil Maritime Surveillance; Permissions Capability – Digital Passenger Declaration; National Automated Fingerprint Identification System; Reform of Settlement Strategies and Services; Safer Communities Fund; Settlement and Integration of New Arrivals from Afghanistan; and Social Cohesion Grants.
The second measure where income tax and GST receipts from migrants are used as an offset is the Pacific Labour Mobility – Reforms.
Pacific Labour Mobility – Reforms
|Foreign Affairs and Trade||$10.4 million||$14.1 million||$11.6 million||$11.0 million|
|Treasury||$10.0 million||$15.0 million||$15.0 million||$10.0 million|
|Education, Skills and Employment||$5.0 million||$7.4 million||$6.1 million||$6.2 million|
|Fair Work Ombudsman and Registered Organisations Commission||$2.2 million||$2.4 million||$2.4 million||$2.4 million|
|Total Payments||$27.7 million||$38.9 million||$35.2 million||$29.6 million|
Australian Tax Office
|$30.0 million||$40.0 million||$35.0 million||$35.0 million|
|DHA||$10.0 million||$5.0 million||$5.0 million||$5.0 million|
|Total Receipts||$40.0 million||$45.0 million||$40.0 million||$40.0 million|
Source: 2021-22 MYEFO, Page 236
This measure is described as follows:
“The Government will provide $81.3 million over four years from 2021-22 (and $18.9 million in 2025-26) to increase Pacific labour mobility, including:
- supporting an additional 12,500 Pacific workers under the Pacific Labour Scheme by 2022 to address workforce shortages in regional Australia
- establishing the Pacific Australia Labour Mobility (PALM) scheme as an uncapped, demand driven program by consolidating the Seasonal Worker Programme and the Pacific Labour Scheme from April 2022.
The funding for DFAT and DESE in the above makes some sense as they have a substantial role in this program although Department of Finance would have argued they are already funded to manage these visas.
The funding for the Fair Work Ombudsman is totally inadequate given the extent of wage theft and exploitation being reported in the media with regard to these farm workers – something that can only be expected to grow strongly.
The really surprising allocation is to the Treasury. What role Treasury plays in this program that requires $50 million over four years is another mystery unless this too relates to funding for the ATO to collect taxes from these temporary entrants.
The receipts for DHA are most likely revenue from the visa application charge for these visas although ascribing this revenue to this measure is questionable given these are existing visas.
Most surprising is the increase in income tax and GST receipts. Firstly, the quantum is surprising given how extraordinarily little these workers are actually paid and secondly that Treasury allowed these receipts to be used as an offset to the additional spending.
The third measure where income tax and GST receipts from migrants are used as an offset is the new Agriculture Visa.
Australian Agriculture Visa
|Foreign Affairs and Trade||$5.4 million||$18.7 million||$20.5 million||16.8 million|
|Home Affairs||$3.1 million||$4.1 million||$3.9 million||$3.9 million|
|FWO and Registered Organisations Commission||$1.3 million||$1.9 million||$2.7 million||$2.8 million|
|Agriculture, Water and Environment||$0.4 million||$0.5 million||$0.5 million||$0.5 million|
|Treasury||..||$5.0 million||$15.0 million||$15.0 million|
|Total Payments||$10.1 million||$30.3 million||$42.7 million||$39.0 million|
|Related Receipts – ATO||..||$20.0 million||$50.0 million||$55.0 million|
|Home Affairs||..||$5.0 million||$10.0 million||$10.0 million|
|Total Receipts||..||$25.0 million||$60.0 million||$65.0 million|
Source: 2021-22 MYEFO, Page 231
This measure is described as follows:
“The Government will provide $87.2 million over four years from 2021-22 (and $23.4 million per year ongoing from 2025-26) to introduce the Australian Agriculture Visa (AgVisa) scheme to respond to workforce shortages in the agricultural and primary industry sectors. The AgVisa scheme allows workers to take up opportunities in rural and regional Australia across a range of agricultural industries, including meat processing and the fishery and forestry sectors.”
The funding for DFAT for this measure appears way over the top unless DFAT expects the job of monitoring this visa, and in particular the employers using the visa, will indeed be intensive. The risks of a scandal associated with this visa, as with the Pacific Island visa, are significant.
The funding for DHA is likely to reflect the cost of visa processing as well as compliance action associated with absconders and processing of possible applications for asylum. Given regulations for the visa were introduced on September 30, 2021, it is surprising but perhaps realistic that little to no money is allocated to DHA for visa processing in 2021-22.
The funding for AWE is likely for continuing engagement with farm lobby groups and keeping them happy.
The funding for FWO again looks paltry given the risk this visa poses in terms of worker exploitation and wage theft. It will not be long before FWO has to return to Government for additional funding to deal with investigation, enforcement and prosecution of employers exploiting these workers.
The level of revenue for DHA from visa application fees suggests either a large application fee or very heavy demand for the visa and a high refusal rate.
Once again the most surprising quantum is tax receipts collected by the ATO. At $55 million per annum, it seems the government is expecting the Agriculture Visa workers to be very well paid and taxed accordingly.
Experience with such visas around the world suggests the government is dreaming.
But the most significant development with all three measures is that Treasury has allowed second round tax receipts to be used as an offset for specific departmental spending proposals. This has two long-term consequences.
Firstly, it means that immigration policy settings will increasingly be influenced by the level of income tax collected not the wider public policy issues.
For example, if a serious problem developed with the Pacific Island visa or the Agriculture Visa and there was a need to either abolish these visas or to restrict them significantly, relevant departments would need to find the offsetting savings from their departmental budgets and staffing.
As a long-term former public servant, I can readily confirm how painful that would be and that it is highly likely the departments concerned would look for any means of allowing the visas to continue, even if the public interest was that these should be abolished.
Secondly, once some departments are allowed to use second round tax revenue as an offset to departmental spending proposals, the imagination of all ministers will start to run wild. All sorts of bizarre proposals will come forward with Treasury/Finance unable to reject these automatically because of the long-standing rule that second round tax revenue is an unacceptable offset.
Treasury would be well-advised to go back to the Treasurer and re-establish the long-standing offsets rule.