For the first time ever, I tuned into ABC last night to watch the federal budget being delivered by Treasurer Josh Fydenberg. I’ll admit that currently living in Victoria makes my time feel less precious, but I also thought it more important than ever to understand how the government plans to support our economy’s recovery.
Here’s what stood out to me as to what will have the most significant impact my business and our clients operating in the Victorian Infrastructure and Built Environment.
The numbers to set the context (they’re pretty spicy)
Budget deficit (loss) of $213.7 billion in 20/21. Deficit narrows to $112 billion in 2021/22, $87.9 billion in 22/23 and $66.9 billion in 23/24.
The national debt will reach $703.2 billion (36% of GDP) this year and peak at $966.2 billion (44% of GDP) in June 2024.
Economic growth to fall by 1.5% in 20/21 before expanding by 4.75% in 21/22.
Unemployment is forecast to be 7.25% by the end of the 20/21 financial year, down from a peak of 8% in December. Unemployment to drop to 6.5% in 21/22.
Spend money. Grow the economy. Create jobs.
In the words of the treasurer, “There is no economic recovery without a jobs recovery. There is no budget recovery without a jobs recovery. And this budget is all about jobs”.
As the owner of a recruitment agency, you are speaking my language, Josh. Tell me more…
The government will spend $1.2 billion on creating 100,000 apprenticeships and traineeships.
The JobMaker Hiring Credit will be paid for a year to businesses who hire an unemployed worker aged 16 to 35 from the JobSeeker program. The rate will be $200 a week for people under 30 and $100 a week for people between 30 and 35, as long as they work at least 20 hours a week. A great idea, but I hope it doesn’t disadvantage the over 35-year-old unemployed finding work.
The budget forecasts that it will support 450,000 jobs, though I would like to see their workings out.
Businesses with a turnover of up to $5 billion will be able to instantly write off any asset purchased before June 30th, 2020. A huge opportunity to reduce tax if you have cash in the bank to spend. This will really incentivise people to invest in their business – e.g. new vehicles, construction machinery etc.
Loss carry back scheme – if a company has paid tax on profits in past years, they can claim back a refund to offset a current loss, until they become profitable again. This will be a huge help to cash flow to businesses hitting a rough patch.
Additional company purchases will now be FBT free, including car parking and work-related electronic devices. I expect to see many more companies offering these incentives in remuneration packages.
Personal Tax Cuts
The upper limit of the 19% personal income tax bracket will increase from $37,000 to $45,000 and the 32.5% marginal tax rate upper threshold will lift from $90,000 to $120,000.
The tax plan means people who earn between $45,000 and $90,000 will take home an additional $1,080 this financial year.
Workers who earn more than $90,000 will take home up to $2,565 extra, with people earning more than $120,000 receiving the maximum benefit.
Basically, everyone gets a take-home pay rise with the hope that we will spend this money and support the economy. I’d imagine this will be universally popular amongst working Australians.
An extra 10,000 places in 2020/21 under the First Home Loan Deposit Scheme to buy a new home or newly built home.
These first home buyers can secure a loan with a deposit of as little as 5%, with the government guaranteeing up to 15% of a loan.
$1 billion increase in the government guarantee to the National Housing Finance and Investment Corporation to support more affordable housing.
I look forward to seeing the impact of this on Victorian housing and residential land development markets.
$14 billion into new and accelerated infrastructure investment, which the government claims will create an additional 40,000 jobs.
The sizable project in Victoria is the $528 million investment into upgrading the Shepparton and Warrnambool line.
$2 billion into road safety upgrades. This will be provided to states on a “use it or lose it” basis. If states don’t get organised as to where the funds will be used, they will be reallocated to other states – we better get a wriggle on.
$1 billion to local governments to upgrade roads, pavements and streetlights. This sounds like a lot, but there are a lot of local governments in Australia.
It’s an aggressive budget with record spend levels. To put that in perspective, the level of stimulus in this budget is approximately $257 billion, compared to $51 billion during the GFC. Debt levels will skyrocket, but given how low interest rates are, the cost of servicing those debts will actually be lower than servicing of debts back in 18/19.
The success of the budget is also reliant on a few assumptions that even I, as someone who usually drinks from a half full glass, think are a bit optimistic. Those assumptions are:
Nationwide vaccine by the end of next year.
Future COVID-19 virus outbreaks in Australia are local and contained.
People keep obeying social distancing until a vaccine is available.
All state borders will open by the end of this year, except WA which will be April next year.
There is no shock or disaster internationally.
While the path the government has set can be easily derailed, it’s hard enough to set a quarterly budget for a 21-person company, let alone an annual budget for 26 million-person country.
The government are spending big money to stimulate the economy and most of it is being directed via business (instant asset write off - $26.7 billion, JobKeeper - $15.6 billion, Loss-carry back - $4.9 billion, JobMaker credit - $4 billion). That coupled with the reduced personal income tax should support additional spending.
It will be interesting to see the level of impact it has on business and consumer confidence but, on first cut, the fundamentals seem right. As always, time will tell.