As expected, the focus is on job creation, tax cuts and targeted spending to get the economy over the COVID-19 hump.
The Treasurer said this Budget, which was delayed six months due to the pandemic, is “all about helping those who are out of a job get into a job and helping those who are in work, stay in work”.
THE BIG PICTURE
With official interest rates at a record low of 0.25 per cent, the Reserve Bank has little firepower left to stimulate the economy. That puts the onus on Government spending to get the economy moving, fortunately at extremely favourable borrowing rates. And that is just as well, because debt and deficit will be with us well into the decade and beyond.
After coming within a whisker of balancing the budget at the end of 2019, the Treasurer revealed the budget deficit is now projected to blow out to $213.7 billion this financial year, or 11 per cent of GDP, the biggest deficit in 75 years. The Government forecasts the deficit will fall to $66.9 billion by 2023-24. Net debt is expected to hit $703 billion this financial year, or 36 per cent of GDP, dwarfing the $85.3 billion debt last financial year. Debt is expected to peak at $966 billion, or 44 per cent of GDP, by June 2024, dare I say $1 trillion may even occur.
The figures are eye-watering and how the large deficit will be repaid has not been addressed.
ITS ALL ABOUT JOBS
As we transition away from the JobKeeper and JobSeeker subsidies, the Government announced more than $6 billion in new spending which it estimates will help create 450,000 jobs for young people. These measures are targeted at Youth unemployment as it currently stands at 14.3 per cent, more than twice the overall jobless rate of 6.8 per cent.
- A new JobMaker program worth $4 billion by 2022-23, under which employers who fill new jobs with young workers who are unemployed or studying will receive a hiring credit of up to $10,400 over the next year. Employers who hire someone under 29 will receive $200 a week, and $100 a week for those aged 30-35. New employees must work at least 20 hours a week to be eligible.
- A $1.2 billion program to pay half the salary of up to 100,000 new apprentices and trainees taken on by businesses.
PERSONAL TAX CUTS
As widely tipped, the government will follow up last year’s tax cut by bringing forward stage two of its planned tax cuts and back dating them to July 1 this year to give mostly low and middle-income taxpayers an immediate boost. This is great news indeed.
As the table below shows, the upper income threshold for the 19 per cent marginal tax rate will increase from $37,000 a year to $45,000 a year. The upper threshold for the 32.5 per cent tax bracket will increase from $90,000 to $120,000.
|Marginal tax rate*||Previous taxable income thresholds||New taxable income thresholds|
|45%||More than $180,000||More than $180,000|
|Low income tax offset (LITO)||Up to $445||Up to $700|
|Low & middle income tax offset (LMITO)||Up to $1,080||Up to $1,080**|
**LMITO will only be available until the end of the 2020-21 income year
The impact of this is about 1% to 1.5% extra. For example, for someone on $100,000, they will have $1,500 more in their pocket to spend.
No changes were made to the stage three tax cuts due to start in July 2024 which will introduce a flat 30% tax bracket for income between $45,000 to $200,000.
BUSINESS TAX RELIEF
In another move that will help protect jobs in the hard-hit small business sector, business owners will also get tax relief through loss carry back provisions for struggling firms. This will allow them to claim back a rebate on tax they have previously paid until they get back on their feet.
Businesses with turnover of up to $5 billion a year will be able to write off the full value of any depreciable asset they buy before June 2022.
HOUSING AND INFRASTRUCTURE
As part of its job creation strategy, the government also announced $14 billion in new and accelerated infrastructure projects since the onset of COVID.
The projects will be in all states and territories and include major road and rail projects, smaller shovel-ready road safety projects, as well as new water infrastructure such as dams, weirs, and pipelines.
The construction industry will also be supported by the first home loan deposit scheme being extended to an extra 10,000 new or newly built homes in 2020-21. This scheme allows first home buyers to purchase with a deposit as low as 5 per cent and not need to pay Lenders Mortgage Insurance (LMI) as the government guarantees 15%.
CASH BOOST FOR RETIREES
Around 2.5 million pensioners will get extra help to make up for the traditional September rise in the Age Pension not going ahead this year.
Age pensioners, people on the disability support pension, Veterans pension, Commonwealth Seniors Health Card holders and recipients of Family Tax Benefit will receive two payments of $250 from December and from March. This is in addition to two previous payments of $750 earlier this year.
Disappointingly, self-funded retirees won’t necessarily get anything specific.
HEALTH AND AGED CARE
After the terrible toll the pandemic has waged on aged care residents and the elderly, the Government will add 23,000 additional Home Care packages to allow senior Australians to remain in their home for as long as possible.
Funding for mental health and suicide prevention will also be increased by $5.7 billion this year, with a doubling of Medicare-rebated visits to 20 sessions.
As the underlying Budget assumptions are based on finding a coronavirus vaccine sometime next year, Government projections for economic growth, jobs and debt are necessarily best estimates only.
Only time will tell if Budget spending and other incentives will be enough to encourage business to invest and employ, and to prevent the economy dipping further as JobKeeper and JobSeeker temporary support payments are wound back.
It is important to note that the policies outlined in this publication are yet to be passed as legislation and therefore may be subject to change.
If you have any questions about any of the Budget measures and how they might impact your finances, don’t hesitate to contact us.