The federal government has outlined a big spending budget, with almost $50 billion in tax relief for low- and middle-income earners, a record deficit this current financial year and new investment allowances for 99 per cent of Australian businesses.
It was a budget designed to kickstart the economy, and the government hopes to create 950,000 new jobs during the next four years.
New measures announced on Tuesday night amount to almost $100 billion and the government is forecasting a budget deficit this financial year of $213.7 billion, before declining to $66.9 billion by 2023-24.
Treasurer Josh Frydenberg said the sharp increase in debt levels was a heavy burden, but necessary to deal with “the greatest responsibility of our time”. He positioned the Budget as a shift from defending the economy during the pandemic, to moving into a rebuilding phase.
The government has forecast the economy to contract by 3.75 per cent this calendar year, and 1.50 per cent this fiscal year. Unemployment is expected to peak at 8 per cent. During the 2022 fiscal year, Treasury forecasts economic growth of 4.75 per cent and a drop in the unemployment rate to 6.5 per cent by the June quarter of 2022.
Key economic parameters
|
|
Financial year 2021 |
Financial year 2022 |
|
Economic growth (%) |
-1.5 |
+4.75 |
|
Unemployment rate (%) |
7.25 |
6.50 |
|
Inflation rate (%) |
1.75 |
1.50 |
|
Budget deficit ($b) |
213.7 |
112.0 |
Mr Frydenberg said the economic and fiscal strategy set out a path to grow the economy, boost consumer and business confidence and create jobs. Once the recovery has taken hold and the unemployment rate is on its way back to pre-COVID-19 levels, the government will shift its focus to stabilising net debt.
Net debt will increase to $703 billion, or 36 per cent of gross domestic product this year, and peak at $966 billion in June 2024. Gross debt will hit $1.138 trillion by 2024.
The government said it would change legislation so that new super accounts will no longer be created every time a worker changes jobs. Instead, the employee will take their super account with them to their new job. The government said superannuation members were paying $450 million a year in unnecessary fees as a result of six million multiple accounts. The government will also establish an online comparison tool known as YourSuper.
Other major policy changes include:
- bringing forward already legislated income tax cuts, to be backdated to 1 July 2020, that will benefit low and middle income earners
- businesses with turnover of up to $5 billion will be able to write off the full value of eligible assets, effective immediately
- a new JobMaker hiring credit, available for employers who employ people on JobSeeker aged between 16 and 35 years
- an additional $1.2 billion to create 100,000 new apprenticeships and 50,000 places for higher education short courses in agriculture, health, IT, science and teaching
- measures to support women in the workforce, first home buyers, more money for the national disability insurance scheme and the health sector, and extra payments to pensioners
- money for infrastructure, cyber security and regional Australia
- an extra $1.3 billion for the manufacturing sector and $1.9 billion to support low emissions and renewable technologies and
- extra funding for the CSIRO and universities.
Mr Frydenberg said the road to recovery would be hard, but there was hope.
For more information about these measures, and others that may affect you, read Challenger’s full Federal Budget Report 2020-21.
Chris Plater is Challenger life chief executive and chief investment officer.
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This update is issued by Challenger Life Company Limited ABN 44 072 486 938, AFSL 234670 (Challenger) and is current as at 7 October 2020. It does not constitute financial product advice and is intended solely for licensed financial advisers or authorised representatives of licensed financial advisers. It must not be given to a retail client except where it is included as part of the financial adviser’s own advice, provided that the financial adviser’s advice does not state or imply that the advice is provided by Challenger. It is a guide only and based on Challenger’s understanding of the 2020-21 Federal Budget Report and current taxation and (where relevant) social security laws. These laws may change, and the proposals mentioned in the 2020-21 Federal Budget Report may not become law. In preparing this update, Challenger relied on publicly available information and sources believed to be reliable, however, the information has not been independently verified by Challenger. While due care and attention has been exercised in the preparation of this information, Challenger gives no representation or warranty (express or implied) as to its accuracy, completeness or reliability. The information presented in this update is not intended to be a complete statement or summary of the matters to which reference is made in this update. To the maximum extent permissible under law, neither Challenger nor its related entities, nor any of their directors, employees or agents, accept any liability for any loss or damage in connection with the use of or reliance on all or part of, or any omission inadequacy or inaccuracy in, the information in this update. Neither Challenger, nor any of its officers or employees, are a registered tax agent or a registered tax (financial) adviser under the Tax Agent Service Act 2009 (Cth) and none of them is licensed or authorised to provide tax or social security advice.
