Federal Budget 2020-21: All about the job ahead
Federal Budget 2020-21: All about the job ahead
Handing down his second budget, Treasurer Josh Frydenberg this evening declared there is a “monumental task ahead” to rebuild the economy and secure Australia’s future following “the most severe economic downturn since the great depression” in the wake of the COVID-19 pandemic. The 2020-21 Budget was previously expected to return Australia to surplus for the first time in 12 years, however the impact of the COVID-19 pandemic and the unprecedented levels of Government support for the economy is expected to see Australia’s net debt reach $966 billion by June 2024.
In Australia, real GDP is forecast to fall by 1.5 per cent this calendar year and unemployment to peak at 8 per cent in the December quarter. In 2021, real GDP is forecast to grow by 4.75 per cent, and unemployment is expected to fall to 6.5 per cent by the June Quarter 2022. The deficit for this financial year is expected to hit a record $213.7 billion, which will fall to $66.9 billion by 2023-24. Combined deficits over the forward estimates amount to $480.5 billion. Gross debt is expected to reach 44.8 per cent of GDP by the end of 2020-21, increasing to 51.6 per cent of GDP by the end of the forward estimates, and stabilising at around 55 per cent of GDP in the medium term. Net debt will be $703 billion in 2020-21, equal to 36.1 per cent of GDP, and will peak at $966 billion in June 2024, equal to 43.8 per cent of GDP.
The Government’s revised Economic and Fiscal Strategy abandons the pursuit of a budget surplus, and instead contends that economic growth and job creation is essential to repair the budget and ensure a sustainable budget position over time. The Treasurer again confirmed that once the unemployment rate is under 6 per cent, the Government will shift from providing temporary and targeted support to stabilising gross and net debt as a share of the economy.
The big caveat to the Budget forecasts is the assumption that a COVID-19 vaccine will be available by the end of 2021. This directly impacts the immigration forecasts and the assumed contribution to the economy of temporary migrants such as international students.
The 2020-21 Budget includes $98 billion in new measures to generate economic growth and create 950,000 jobs over the next four years, with the Government’s JobMaker scheme forming the centrepiece of the Government’s COVID-19 recovery plans. Notably, the $4 billion JobMaker Hiring Credit will encourage businesses to create new jobs and fill them with younger Australians. The Government will also spend $1.2 billion to subsidise up to 50 per cent of an apprentice’s wages for eligible businesses to create 100,000 new apprenticeships and traineeships.
Consistent with previous commentary, the Treasurer reiterated that the Government will not increase taxes to fund Australia’s economic recovery, but will instead bring forward tax cuts by two years, with the greatest benefits to flow to low and middle-income earners. Over 11 million taxpayers will receive a tax cut backdated to 1 July 2020, while the Government will lift the threshold for the 19 per cent tax rate to $45,000 and the 32.5 per cent threshold to $120,000. The Government will also retain the Low and Middle-Income Tax Offset for an additional year.
As has been foreshadowed by the Prime Minister and Treasurer, the Government is proposing a business-led recovery. To boost investment, businesses with a turnover of up to $5 billion will be eligible to immediately write off the full value of any depreciable asset they purchase for their business until June 2022. Additionally, companies will be able to offset losses incurred to June 2022 against prior profits made in or after the 2018-19 financial year, creating an estimated 50,000 additional jobs across the nation. Further, the Treasurer this evening announced the Government would back down on plans to cut the Research and Development Tax Incentives, and instead announced an additional $2 billion in R&D Incentives, including removing the cap on refunds, lifting the rate and rewarding businesses who invest more.
In infrastructure, the Government will add $10 billion to the 10-year infrastructure plan to build and upgrade roads, rails and bridges. Additionally, the Government will provide $2 billion for shovel ready projects such as road safety upgrades, with a further $1 billion for local councils to upgrade local roads, footpaths and street lighting. States that do not use the full amount of funds risk losing allocated funds to another state.
For further information on key portfolio measures, please refer to GRACosway’s detailed briefings:
- Defence, Foreign Affairs, Trade, Home Affairs and Attorney-General
- Health, Families and Social Services
- Infrastructure, Regional Development and Cities
- Communications and the Arts and Education, Skills and Small Business
- Resources, Energy and Industry
- Agriculture and Environment
- $507 billion spent to date on the response and recovery to the COVID-19 pandemic.
- $213.7 billion deficit, with total projected deficits over the forward estimates of $480.5 billion.
- Net debt $703.2 billion in 2020-21 and will reach $966.2 billion in 2023-24.
- Real GDP to decline by 1.5 per cent this financial year, before growing by 4.75 per cent in 2021-22.
- Unemployment rate to reach 7.25 per cent in 2020-21.