Federal Budget of Australia 2020-2021
“The Road to recovery will be hard but there is hope” – Josh Frydenberg
The COVID-19 pandemic has affected the Australian economy, health system & community immensely like every other nation across the world. Since the effects of COVID-19 are continued, the disruptions to lives, education, and health will be felt in the years to come. The Federal Budget of the Australian government was designed to support Australian Households and businesses through this difficult period. This has been the most significant federal budget over a decade and it is definitely aimed at the road to recovery.
The revised economic and fiscal strategy recognizes economic growth and job creation are the key two aspects to ensure a sustainable budget position over time. The government strategy can be divided into two phases. The first phase being the COVID-19 Economic Recovery Plan that focuses on job creation, medium-term stabilizing, and reducing debt as a percentage of the economy. The second phase will start once the unemployment rate is below 6% and the economy has come to the previous stabilized level. The focus on the second phase is reducing debt as a share of GDP and long-term stability.
Personal Income Tax Relief – Federal Budget of Australia
The 2020 federal budget has delivered an additional $30.3 billion for personal income tax relief with an aim of supporting the economic recovery. The total tax relief to be given is estimated at $8.1 billion for the 2020-21 income year for the already legislated Personal Income tax plan. Around 11.6 million taxpayers will benefit from low-middle income tax offsets and bringing forward the tax cuts. The tax relief for low- and middle-income earners will be up to $2,745 for singles and up to $5,490 for dual-income families. By reducing the income tax of working Australians will uplift the GDP by around $3.5 billion in 2020-21 and $9 billion in 2021-22. This will also create additional 50,000 jobs by end of 2021-22.
People will have more money in their pockets due to this initiative which will allow them to spend more on their requirements. This is a good initiative as the economy will improve by getting money back through individual spending and business investment. This improves the supply and demand empowers the businesses and employers will be able to retain the staff. Lower tax rates motivate people to work hard as they know they can keep most of their money with them.
Home Loans for First Home Buyers – Federal Budget of Australia
The First Home Loan Deposit Scheme has been introduced to support home loan buyers. This gives the opportunity to first home buyers to get a loan to build a new home or purchase a newly built home with a 5% deposit while the government guaranteeing a 15% of the loan. The other motive of this scheme is to stimulate the activities in housing construction. There will be more jobs in the housing industry. It will also reduce the regulatory burden on lenders and borrowers boosting the economy. Through the budget, the government has increased its guarantee of the National Housing Finance and Investment Corporation (NHFIC) by $1 billion. The idea is to increase NHFIC bond issuance into the wholesale capital market.
Investments will get attracted to the housing construction industry and help the Government’s Home Builder program initiated in June. This Homebuilder program provides a $25,000 grant to eligible Australians to build a new home or rebuild an existing home.
Support to Infrastructure Projects – Federal Budget of Australia
The federal budget invests $14 billion in new and accelerated infrastructure projects over the next four years. This is one of the largest infrastructure budgets in Australian history with a focus on regional economies. These projects are to create 40,000 jobs in the construction industry. According to the plan, there is a project for every state & territory. There is an additional $3 billion for shovel-ready projects, Community Infrastructure projects, and small-scale road safety projects. These projects are expected to boost the job market and economy over the next two years. Under the new regulations, the unused funding for road safety projects is getting allocated to states and territories which has successfully completed their previous funding. This will make sure the project funding is delivered efficiently.
Improve Business Cashflow
The government is providing a temporary tax incentive to businesses from 6th October 2020 to 30th June 2022, if they have a turnover of up to $5 billion. Businesses will be able to deduct the full cost of eligible depreciable assets in the year they are installed. Any cost of improvements to the existing eligible assets during the period will also be deductible. Due to this change, the after-tax cost of eligible assets will be reduced improving the business cashflows. On the other hand, businesses will bring forward all the clasped investments before the tax incentive period expires.
Another scheme under the new budgetary framework is to allow businesses with turnover up to $5billion to offset losses against previous profits which tax has been already paid to create a refund. According to this, all the losses made up until 2021-22 can be set off against profits incurred in or after 2018-19. This initiative will provide further cashflow support to businesses and encourage investment.
Empower Small & Medium Scale Businesses
The federal budget has reduced the tax rate to 25% for companies with a turnover of less than $50 million. The tax treaty network has been modernized eliminating double taxation, settling taxing rights between other countries. From the new federal budget, 50% of eligible loans issued by different lenders to small and medium businesses are guaranteed. This supports up to $40 billion in lending.
A Path towards Digital Australia
Every challenge brings an opportunity. The new norm is digitization across all the workplaces and areas like cybersecurity has become key platforms for economic growth. $24.7 million has been allocated to help small business operators who are involved with the digital technologies industry. There is extended support provided by Austrade for the fintech sector to improve financial services. $29.2 million of the budget is planned to support the 5G network across the country. Another aspect of aiming at digitalization is to cut the red tape. All the regulatory processes are planned to streamline ad digitized. This will reduce the regulations with unnecessary costs and improves business activity.
Development of Agricultural Industry
The budget invests $328 million in agricultural exports and assists farmers to recover from COVID-19, bushfire, and drought impacts. The government is looking into modernized digital services for agricultural exporters enabling them to get their products to export markets with cheaper and easier means. The new system will eliminate all the form filling and they will have access to up-to-date information to understand Australia’s free trade agreements. $35.2 million is allocated to reduce the regulatory burden on seafood, meat, live animals, and plant exports.
Job Maker Hiring Credit – Federal Budget of Australia
Job Maker Hiring Credit is an incentive scheme given to businesses to hire new employees who are young job seekers below 35 years old. This is a key measurement implemented to help the recovery of both businesses & households. Job losses have been extensive during the pandemic period and through this scheme young people will have access to job opportunities. The labor force of the country will be back to the normal average. The allocation to this heme is $4 billion from 2020-21 to 2022-23. This job hiring credit will be available for each job a business creates to hire an eligible young employee for the 12 months starting from October 2020. If a company hires an employee between 16 to 29 years the hiring credit for a week would be $200 and $100 for a person from 30-35 years.
Employers will have to prove that they have increased their overall employment up to 12 months and the employee’s payroll information needs to be shared with the Australian Taxation Office to be eligible for this incentive.
Job Keeper Payment- Federal Budget of Australia
This initiative can be considered as the largest fiscal and labor market intervention of the Australian government, supporting businesses to retain employees’ jobs through a wage subsidy. This incentive scheme is supporting around 3.5 million individuals in over 900,000 businesses with a $101 billion economic lifeline. The budget strengthens this scheme and extends it until March 2021 targeting the businesses that are significantly impacted by the economic slump.