Today’s Federal Budget grapples with the most severe economic shock in living memory, and provides a powerful prescription for businesses to recover.
In this pandemic Budget, the Federal Government’s prescription is for $507 billion in recovery support, including $17.8 billion in income tax cuts, wage subsidies, and business investment incentives, bringing the deficit to $213.7 billion this financial year. The deficit will take years to repair, set to remain at $49.5 billion until 2030-31.
Although gross debt will exceed $1 trillion next year, this is not as acute as feared three months ago. Record low interest rates mean that interest payments will actually be lower in coming years.
The contraction in GDP is forecast to be 1.5 per cent this financial year, down from an expected 2.5 per cent contraction in July. The budget includes an optimistic expectation of a bounce back of 4.75 per cent growth next year.
CCIWA will continue to press for more fundamental tax and industrial relations reform, but the Budget provides a comprehensive response to support the Australian economy for coming months and years.
The Budget confirms the current phase of fiscal policy will remain until the unemployment rate returns to below 6 per cent. It looks to support businesses to land on their feet, while retaining jobs, as they transition off emergency payments like JobKeeper. JobKeeper is still slated to expire at the end of March next year, with a shift to JobMaker wage subsidies for new hires and tax cuts for households.
Critically, the Government commits to a recovery without increasing taxes. This will be welcome confirmation for the business community.
Direct incentives will stoke business investment, sorely lacking in the WA economy. Investment outside the mining sector is set to contract 14.5 per cent this financial year.
The Budget includes $1.5 billion to power up advanced manufacturing, additional funding for research and development and $800 million to help firms do business online. It applies fringe benefits tax breaks to help start-ups buy assets, and to re-skill workers into areas of need.
These important bottom-up initiatives help the private sector to begin the task of creating the industries and jobs of the future.
There is a still a significant opportunity to achieve real structural reform, to permanently ease the tax burden on business, to generate investment and attract foreign capital. These reforms are more important than ever, with Australia no longer able to rely on population driven growth — lower migration and fertility is expected to see population permanently lower in coming years.
