What a difference a year makes. Okay, technically it’s been 18 months since the last Federal budget, but let’s not split hairs. The contrast between Treasurer Josh Frydenberg’s “Back in Black” budget of April 2019 and last night’s “Road to Recovery” version could not have been greater.
Of course the reason the Budget was delayed six months was due to the absolute pandemonium that befell Australia in March this year, just as Treasury would normally have been putting the finishing touches on another budgetary process.
Instead it was all hands on deck, as COVID-19 effectively brought Australia’s economy to a standstill. The Government’s response, which we outlined back in March, was swift and significant, with a range of measures that no doubt averted financial disaster for many.
As this goes to print, over three million Australians remain on JobKeeper, the wage subsidy programme that has allowed many to retain a connection to employment, however tenuous that might currently be. Some one million others aren’t as fortunate, now relying on JobSeeker and the Coronavirus supplement, the key social security measures directed at jobless individuals.
With the JobKeeper rate recently reduced, and its end scheduled for early next year, this Budget’s focus is clearly on getting Australians back into jobs.
To do that, the jobs will first have to return. This Budget contains a range of measures designed to encourage businesses to hire new employees. It also contains individual tax cuts that the government hopes will be spent rather than saved.
To find out about which bits of Budget 2020/21 will impact you, read on…
Deficit Isn’t a Dirty Word
The headline grabbing word last year was “surplus”, all $7.1 billion projected dollars of it. Any budget surplus would have been quite an achievement, and the first in over 11 years.
Unfortunately, COVID-19 drastically changed the fiscal equation. Today the catchphrases that resonate politically are “support” and “recovery”. Business and individuals need the Commonwealth government to deliver on both fronts.
And to Treasurer Frydenberg’s credit, he has not shirked the task. The additional spending measures announced will see the headline budget deficit blow out to over $213 billion for 2020/21. Net debt, meanwhile, is forecast to hit $703 billion for 2020/21.
It should be noted that this Budget is based on three key assumptions, all of which remain highly uncertain at this point. First, that a COVID-19 vaccine is perfected, distributed and provided to the population before the end of 2021. This effectively means that Treasury is assuming that life returns to a semblance of pre-COVID normality from 2022 onward.
Second, that businesses use the incentives unveiled in the Budget to create new jobs at the rate projected. And finally, that Australians, inoculated, employed and with renewed confidence, spend rather than save their tax cut-induced higher take home pay.
Key Economic Estimates
In last year’s Budget analysis we made mention of the fact that economic forecasting is a highly uncertain exercise.
Given no-one has any idea when a vaccine will be available and administered globally, we’re in no position to comment on the veracity of Treasury’s forecasts below. We’ll just let the numbers speak for themselves:
At the heart of this Budget are a range of incentives for businesses to hire new employees. And the single biggest such scheme is a new JobMaker Hiring Credit program that will give eligible employers up to $200 per week for each additional employee between the ages of 16 and 29 years old put on over the next 12 months, and $100 per week for new employees aged between 30 and 35.
This new scheme is expected to support the creation of 450,000 new jobs at a cost of $4 billion between this financial year and 2022/23.
In addition, the Government is introducing a temporary ability for businesses with turnover under $5 billion to fully write-off spending on depreciable assets. It is expected that some 3.5 million businesses, employing some 11.5 million people, will be eligible for this instant write-off benefit.
Meanwhile, the JobKeeper payment will continue until 28 March 2021 at the newly reduced rates of $1,200 per fortnight for full-time employees and $750 for part-time employees. Since being introduced, some $60 billion has been paid in JobKeeper payments.
Personal Tax Cuts Brought Forward
The personal tax cuts that were announced last year involved various “stages” that were to be attained through to 2024/25.
In light of the need to rebuild consumer confidence, the Government is bringing forward its planned “stage two” tax cuts by two years. This will see changes to the income thresholds to which the current Marginal Tax Rates (MTRs) apply as follows:
As we noted in last year’s Budget analysis, the Low and Medium Income Tax Offset (LMITO) of up to $1,080 for single income households and $2,160 for dual income households was only meant to be a temporary measure, but it has been retained for the 2020/21 financial year to assist those on more modest incomes.
All up, these tax measures will help deliver a tax saving of around $2,160 to an individual with a taxable income of $60,000 for the 2020/21 financial year, relative to the 2017/18 tax scales.
For those in receipt of the Age Pension and other eligible recipients, there will be two $250 Economic Support Payments to be made before 30 June 2021.
Other Initiatives of Interest
This Budget has an unenviable job to do; to stabilise a fragile economy and set in place the seeds of recovery. While the big ticket items are definitely targeted toward business incentives to spend and hire, there are a range of other measures that are worth highlighting below.
The Government is providing $111.6 million to support the continuation of temporary MBS telehealth services for GP consultations, mental health, allied health and specialist services. This will help provide ongoing access to essential health services for vulnerable groups such as the elderly or those with chronic conditions.
It will also provide $100.8 million over two years from 2020‑21 to ensure people with a mental health care plan can access up to 10 additional Medicare‑subsidised individual psychological therapy sessions.
Skills and Apprenticeships
In last year’s Budget the Government announced the creation of additional apprenticeship incentive payments in areas of identified need to support up to 80,000 additional apprentices over five years.
Now it has announced a $1.2 billion Boosting Apprenticeships Wage Subsidy to support a further 100,000 new apprentices and trainees. The wage subsidy will be paid for all commencements at businesses of any size from 5 October 2020 onwards, and will provide employers with a 50% subsidy, up to $7,000 per quarter, of the wages paid for new apprentices and trainees until 30 September 2021.
Your Future, Your Super
The Budget also contained a range of measures designed to improve the efficiency of the superannuation system, with the aim of improving outcomes for superannuation members over their working lives.
Under the new Your Future, Your Super package, individuals will find it easier to maintain or ‘staple’ their current superannuation arrangement when they change jobs. It will be the new employer’s responsibility to find your existing super fund and start making super payments into it, rather than setting up a new (or default) fund. This should reduce the number of unintended super funds people create as a result of job changes.
In addition, super funds will have to submit to annual tests of performance. Funds found to be persistently underperforming will be prevented from taking new members.
In all, these changes should drive greater performance and fee competition in the superannuation sector, which currently derives over $30 billion each year from members just in investment and administration fees.
Women’s Economic Security
While the Budget did much expected of it in loosening the purse strings to stimulate economic activity, there was one area that did not receive the support it should.
It was pleasing to see the return of a dedicated women’s economic statement, but the 70-odd pages of the 2020 Women’s Economic Security Statement was long on hyperbole and short on actionable programs with appropriate funding.
Between February and May this year, some 482,000 women lost their jobs, while only 270,000 have regained employment since then. There are now nearly 800,000 women who say they want to work more hours than they currently do.
$240 million over five years hardly seems adequate, given women have been disproportionately impacted economically by COVID-19, both in terms of jobs lost and in future retirement wealth eroded through the Superannuation Early Release scheme.
In summing up Treasurer Frydenberg’s second Budget, the word ‘pragmatic’ springs to mind.
While he would no doubt be disappointed that the much-hoped for budget surplus hasn’t materialised, it must be a source of comfort that the Australian economy is, Victorian second-wave notwithstanding, holding up better than many of its peers worldwide.
Provided a gradual shift to a ‘new normal’ COVID-safe environment can be attained and maintained, this Budget could go a long way to providing the support needed to steer Australia toward recovery and renewal.