Federal Budget 2020 Update
Morrison banks on business to lead Australia’s recovery
Business has been urged to loosen the purse strings and invest heavily as part of a $98 billion ‘road to recovery’ Budget that also offers immediate tax relief for struggling families.
Throwing fiscal caution to the wind, Treasurer Josh Frydenberg’s second Budget offers cash payments for the elderly and tax cuts of $2000-plus for 7 million Australians.
Young Australians and the unemployed are being promised new jobs and additional training places – but the cost will be borne by generations to come with Commonwealth net debt to hit a staggering $966 billion in 2024.
Staring down the worst economic conditions in a century, a stern-faced Treasurer also unveiled a ‘use it or lose it’ infrastructure plan that will pump $110 billion – including new funding of $14 billion – to accelerate roads, rail and other projects.
Business urged to spend, spend, spend
Mr Frydenberg’s recession-busting Budget relies on a raft of incentives for Australian businesses with the Treasurer hoping it will spur a massive spend in new plant and equipment.
In a move the Treasurer hailed as a “game-changer”, most companies – excluding the major banks and big miners – will be eligible to write-off the full value of any eligible asset until June 2022. The measure will cost the Budget $27 billion alone.
“A trucking company will be able to upgrade its fleet, a farmer will be able to purchase a new harvester, and a food manufacturing business will be able to expand its production line,” he told Parliament.
And there will be new incentives for business to take on new staff under a $4 billion Job Hiring Credit. The Budget forecasts the scheme will create 450,000 jobs for young Australians with employers able to claim up to $200 per week for new hires under 30, and $100 per week for workers aged between 30-35.
In a speech to a near-empty Parliament – with COVID-19 preventing the usual Budget night revelry – the Treasurer also announced businesses will be able to offset their losses incurred this year against previous profits.
Families and workers also to gain from tax cuts
With an eye to the next election – expected to be held within a year – the Government announced up to 11 million workers will receive tax cuts, backdated to July 1. Labor almost immediately signalled its support for the tax plan which will deliver tax relief of up to $5,490 for low- and middle-income families this year.
The Government forecasts the tax cuts will cost the Budget $17.8 billion over four years. Under the plan, the 19 percent threshold will be lifted from $37,000 to $45,000, while the 32.5 percent threshold will be lifted from $90,000 to $120,000.
And there is more money for the elderly – a traditional support base for the Coalition – with aged pensioners to receive $500 through two cash payments of $250.
However, Labor and the welfare lobby criticised the Government’s failure to announce changes to the JobSeeker payment, which has propped up the economy during the pandemic.
Gambling on a turnaround from once-in-a-century pandemic
Treasurer Josh Frydenberg’s second Budget is relying on some heroic assumptions, including a proven vaccine for COVID-19 being publicly available next year.
Although Australia’s economy has been hit by the hardest downturn in a century, the Budget forecasts GDP growth to rebound to 4.25 percent next year.
But the road to recovery will be long and it will be expensive.
In sobering news for Australia’s jobless, unemployment is expected to remain above 6 percent for another three years, peaking at 8 percent in the December quarter.
And the pandemic has forced the Government to ditch its promised Budget surplus with net debt to increase to $703 billion (or 36 percent of GDP this year), peaking at $966 billion or 44 percent of GDP in June 2024.
Use it or lose it infrastructure plan
Determined to see more cranes across city skylines, the Budget also expands the Government’s national infrastructure plan. The Budget forecasts another 40,000 jobs will be added to the already 100,000-strong workforce who are building roads, rail, ports and other projects across Australia.
The 10-year infrastructure program will be expanded to $110 billion with the Government pushing to turbocharge ‘shovel ready’ projects to drive economic recovery. There is a strong focus on smaller, local and regional spending that can be greenlit faster, including road safety and some $2 billion for water security projects, on top of existing commitments to underwrite dams. There is also a stronger role for Infrastructure Australia which will be expanding the next Infrastructure Plan to include COVID-19 impacts, overhauling the Infrastructure Priority List assessment framework and advising on increasing industry capacity.
But Canberra is placing pressure on the Premiers by declaring funding will be provided on a ‘use it or lose it’ basis, warning States that drag their feet will lose funding to their rivals.
Reaction to the Budget is broadly positive
The support from business groups to Mr Frydenberg’s Budget has been broadly supportive.
Business Council of Australia CEO Jennifer Westacott said “this is the right Budget at the right time” and will help “get business back on track”.
Access Deloitte Economics partner Chris Richardson said the Government had “no alternative” but to spend its way out of the recession.
In his first comments after the Budget, Labor’s Shadow Treasurer Jim Chalmers said Labor was “inclined” to support the Government’s business tax plan – ensuring the package will be quickly implemented.
However, Mr Chalmers accused the Government of having “no vision” for Australia’s future. “I would have thought we would get more bang for buck from the trillion dollars of debt,” he said.
The Government is also picking a fight with Labor and the unions after announcing plans to force superannuation funds to meet new annual performance tests – and provide greater transparency to investors.