In the midst of global economic uncertainty, it is no surprise that the Federal Budget 2020-21 is focussed on the roll-out of an enormous Government spending program, supported by a wide range of quickfire measures to encourage business investment and job creation. Whilst not focussed on long-term structural reform, the Budget is pragmatic in the circumstances.
All aspects of this budget are sizeable, from the $213 billion deficit and $900 billion of projected national borrowings through to the forecasts of at least three years toil to return economic activity and employment to pre–COVID levels. In the short term, the expenditure measures are likely to significantly support the reignition of the economy.
The question remains: Will this Budget support a structural shift for Australia to be an economy that creates value? In short, it’s a good first step, and support for moving to digital platforms for business, and developing advanced manufacturing capacity are logical, as is the re–establishment of a productive economy (even if it is underpinned by roads and housing), to get things moving.
Long-term structural reform may be something we see tackled in the next Federal Budget, which is now only seven months away, in May 2021 (assuming that we see a return to the normal schedule). As we know, now more than ever, seven months is a long time. We hope, and will lobby for, the Federal Budget 2021-22 to be aspirational for all Australians, including middle market businesses.
The Government must confront and plan for the next stage of economic transformation for the long–term health and viability of the nation. Having set a path to recovery, the Government must next address the complex tax and labour systems, realign the education system for the future, and continue to promote and facilitate innovation to drive growth.
The Treasurer’s maiden Budget last year, which was all about the return to surplus and affirming the Government’s economic credentials heading into an election it was expected to lose, is a very distant memory.
From this year’s Budget, some of the key impacts for business and stakeholders include:
- Consumption stimulus through reduction in personal income tax rates
- Business investment stimulus through immediate asset write–offs based investment allowances
- Stimulus for advanced manufacturing with $1.5B grants for resources; food and beverages; medical products; recycling and clean energy; defence and space
- Housing stimulus through an extension of 10,000 homes to the First Home Loan Deposit Scheme
- Construction stimulus through $14B of infrastructure expenditure
- Youth employment support through $5.2B of subsidies for apprentices and trainees and the JobMaker program
- Recoupment of prior year tax payments with the introduction of loss carry–back rules
Further detail on the expenditure measures is contained here. Pitcher Partners is pleased that several of the suggestions (or variants thereof) in our Pre-Budget Submission were adopted. This was based on feedback we obtained from our clients in our Pre-Budget survey. The Federal Budget 2020-21 Scorecard provides a comparison of the suggestions in our Pre-Budget submission to those announced in the Federal Budget.
In a year that has been challenging for so many, in so many ways, this is probably the Budget that was needed. For now, the middle market must focus on harnessing the considerable opportunities it presents and work to re-establish and then future proof themselves.
A final cautionary observation – the Budget forecasts are all predicated on a complex set of assumptions. Invariably, these will be concerned fundamentals such as growth, core commodity prices and general trading conditions. In a year that will be defined by its Black Swan event of the global pandemic, the detail in this year’s Budget contains the very important assumption that there will be a COVID–19 vaccine program widely available in Australia by no later than the end of 2021.