Massive infrastructure investment, record investment in skills and training and new tax breaks for business have emerged as key parts of the Federal Government’s strategy to reboot the Australian economy.
Delivering one of the most consequential budgets in Australia’s history, Federal Treasurer Josh Frydenberg revealed that Australia’s Commonwealth budget deficit will reach $213.7 billion in the current financial year whilst net debt will increase to $703 billion or 36 percent of GDP this year before peaking at $966 billion or 44 percent of GDP by June 2024.
In his speech, Frydenberg outlined several initiatives to get the economy moving again
First, there is infrastructure, where the government has announced $14 billion in new and accelerated spending on road and rail projects over the next four years.
In addition to the $7.5 billion already announced for major projects on Monday and the previously announced upgrades to the National Broadband Network, this will include $2 billion to fund road safety upgrades as well as $1 billion to support local councils to upgrade roads, footpaths and street lighting.
Next, there is money to encourage hiring and taking on apprentices.
A new JobMaker hiring credit will be available to all businesses apart from banks who take on a new worker who is on JobSeeker, who is aged between 16 and 35 and who works for at least 20 hours per week.
As previously announced, meanwhile, the government has committed an additional $1.2 billion to extend the Supporting Apprentices and Trainees Wage Subsidy scheme under which employers can claim up to $7,000 per quarter for taking on a new apprentice or recommencing apprentice.
Previously costing $2.8 billion and set to conclude on March 31 next year, the program will now be extended until September 30 2021, in a move that is expected to create up to 100,000 additional apprenticeships.
Finally, there are tax incentives to encourage investment and to help businesses who have been impacted by COVID.
On investment, eligibility for the instant asset write off scheme which enables eligible business to claim a full immediate deduction for the costs of new assets has been expanded to cover businesses with a turnover of up to $5 billion – up from $50 million initially and $500 million as of earlier this year.
To help companies through COVID, meanwhile, losses which companies incur in years up until June 2022 will be able to immediately offset against prior profits made on or after the 20118/19 financial year.
Normally, businesses would have to return to profit before they can use these losses.
Other initiatives include:
- The previously announced $1.3 billion manufacturing plan targeting industries such as food and beverage manufacturing, resources technology and critical minerals processing, medical products, recycling and clean energy, defence industry, and space industry.
- Almost $5 billion to support regional recovery, including $2 billion in new funding to build water infrastructure including dams, weirs and pipelines along with concessional loans to help farmers through the drought and money to support regional tourism and help exporters to continue to access global supply chains.
- Further supporting home ownership through the previously announced third round of 10,000 placements under the First Home Loan Deposit Scheme and enabling an additional $1 billion of low cost finance to support the construction of affordable housing.
- $1.8 billion in environmental protection initiatives, including upgrades to facilities at national parks, protecting the marine environment and modernising recycling infrastructure.
- Bringing forward the second stage of legislated income tax cuts which will lift the 19 per cent threshold from $37,000 to $45,000, and the 32.5 per cent threshold from $90,000 to $120,000 by two years. Previously not expected to commence until 2022, these cuts will now by backdated until 1 July 2020.
Frydenberg said the government was focused on getting the economy moving again.
“Tonight, we embark as a nation on the next phase of our journey – a journey to rebuild our economy and secure Australia’s future,” he said, referring to Australia’s journey in respect of COVID-19,” Frydenberg said.
“Our plan will grow the economy. Our plan will create jobs. Our plan will continue to guarantee the essential services Australians rely on without increasing taxes.”
“Our plan is guided by our values. Our circumstances may have changed, but our values endure. Providing a helping hand to those who need it. Personal responsibility. Reward for effort. The power of aspiration.”
“We owe it to the next generation to ensure a strong economy so that their lives are filled with the same opportunities and possibilities we have enjoyed.”
Building industry lobby groups welcomed the budget, saying it would boost confidence in the construction sector, protect the viability of thousands of building and construction businesses and save the jobs of the more than one million people that they employ.
“Making building and construction the keystone of COVID recovery is the right call by the Government,” Denita Wawn, CEO of Master Builders Australia said.
“The Budget will support the industry as the accelerator of economic recovery. It is going to support the country to build its way out of recession.
“Productivity enhancing infrastructure, including local community infrastructure wage subsidies and massive tax incentives for builders and tradies to invest means the Government is putting in place the right foundation for recovery.”
“Hundreds of thousands of small building and construction businesses will now have hope that they can stay afloat.”
“The extension of the First Home Loan Deposit scheme and the $1 billion for the construction of new affordable housing will extend the opportunity to own a home to thousands more people for whom it seemed out of reach.”
“It will unlock even more investment and further activate residential building as the engine of economic growth and employment.”
NAB Chief Economist Alan Oster welcomed the focus on stimulating the economy through fiscal means – albeit suggesting that bolder structural reform would have been useful.
Government debt, Oster said, was of little near-term concern and the economy needs all the help it can get through fiscal stimulus.
Nevertheless, Oster cautioned that economic forecasts published by the Treasury may be overly optimistic.
Whereas Treasury expects the economy to contract by 1.5 percent in 2020/21 before expanding by 4.7 percent in 2021/11, NAB expects a larger contraction (-2.1 percent) in 2020/21 followed by a smaller recovery of 3.8 percent in 2021/22.