Last night our Federal Treasurer Josh Frydenberg, released the Governments 2020-21 Budget which outlined Australia’s economy recovery plan to create jobs, rebuild the economy and secure our country’s future.
The initiatives outlined in this year’s Budget transition us from emergency support back to building confidence and job creation. It is setting out to make our economy more agile and competitive through tax reform, infrastructure and skills development.
2020 has certainly been a year of challenges and change with businesses, people and government being forced to adapt to an every-changing world during the COVID-19 pandemic. Australian organisations have rapidly had a digital transformation, pivoting businesses towards e-commerce, allowing employees to work from home and in many instances moving to online meetings.
We hope you enjoy this 2020-21 Federal Budget Insights.
Australia’s cash deficit is forecast to be $214 billion in 2020-21. The increase in spending, relative to national income, is four times more than during the global financial crisis (GFC). Treasury has projected that a rebound in growth, to generate enough jobs to bring the unemployment rate down to 5 ½% by mid-2024. The question is, is that achievable? History shows that bad times are followed by good times. It happened after the recession in both the early 1980s and early 1990s, again after the Asian financial crisis and after the GFC. Recessions are terrible. Jobs are lost, shops and offices are empty. Industries and manufacturing aren’t working at capacity. And those are the reasons why economies can grow faster. There are people to employ and businesses to start working at capacity again. Recoveries are big opportunities. So, what does this budget set out to do? The Government’s plan with the 2020 Budget policy is to fix the economy, and it will then deal with the deficit later. So how is it going to do that?
Personal tax cuts
Anyone paying tax is set to receive some money back in their pockets with immediate tax relief to come into effect. Personal income tax cuts which were scheduled for 2022 will be brought forward 2 years and backdated to 1 July 2020. An additional one-off benefit in 2020-21 will be provided for low to middle income tax earners of $1,080.
From 1 July 2020, the personal tax rates and threshold will change as follows:
- The top threshold of the 19 per cent personal income tax bracket will increase from $37,000 to $45,000.
- The top threshold of the 32.5 per cent personal income tax bracket will increase from $90,000 to $120,000.
First home buyers
The First Home Loan Deposit Scheme will be extended to help an extra 10,000 people and the value of the properties eligible will also be increased. Previously properties worth up to $700,000 in Sydney were covered under the schedule, but this will be increased to $950,000.
Small businesses with a turnover of up to $50 million will be able to access up to 10 tax breaks, with one of the biggest incentives seeing fringe benefits tax (FBT) cut on car parking, phones or laptops.
Immediate tax write-off: From October 2020, businesses with an annual turnover of up to $5 billion will be able to write off the full cost of eligible assets of any value in the year they are installed, provided they are used by 30 June 2022.
Loss carry-back: Companies with an aggregated turnover up to $5 billion will be able to carry back tax losses incurred in income years 2019-2020, 2020-2021 and 2021-2022 against previously taxed profits from 2018-2019 or later income years, by claiming a refundable tax offset in the loss year.
Hiring Credit: This is to encourage businesses to provide employment to young people and will be available through to October 2021. Businesses who hire eligible young people will receive $200 a week if they hire a person aged 16 to 29 years, or $100 a week if they hire an eligible young person aged 30 to 35.
Apprentices: The Boosting Apprenticeship Commencements wage subsidy incentive is to support businesses to provide employment to eligible new apprentices and trainees providing 50% subsidy of their wages through to September 2021.
Health and Human Services
The government’s focus is to provide long-term investments in reforming aged care and mental health services which will see an additional $2.2 billion in funding for the aged care system and $5.7 billion in funding for mental health services. There is also potential to pre-order more than 80 million doses of COVID-19 vaccines.
The Federal Government is set to invest an additional $11 billion in infrastructure spending. This is in addition to the $100 billion announced last year. These include small scale road safety upgrades and local council road, footpath and street lighting programs.
The Construction sector was a big winner this year though, with measures to stimulate building across the country in a bid to create jobs and increase cashflows right now. This includes the $688m HomeBuilder scheme, which provides eligible owner-occupiers with a grant of $25,000 to renovate or build new homes.
As always, we are always here to discuss any part of the latest Federal budget. Please reach out to your adviser should you have any questions.