posted in: Uncategorized

2020 Budget Analysis


The 2020 budget establishes a path to economic recovery following the fallout of COVID-19. The three major pillars of the budget are tax cuts to promote spending, business-led job creation initiatives and infrastructure funding for states and territories. The government’s goal is to create a million jobs in four years. The government is spending at unprecedented levels; creating the biggest deficit in decades. Montara Wealth analyses the budget below:

Economic outlook 

  • The economy is forecast to shrink by 3.75 per cent this calendar year, then forecast to grow 4.25 per cent in the 2021 calendar year 
  • Unemployment is forecast to peak at 8 per cent in the December quarter. It’s expected to stay above 6 per cent until mid 2023 
  • The forecasts are dependent on a number of assumptions. If these assumptions don’t come to fruition then the economic forecasts could be derailed. The assumptions include: 
    • That all Australians will be vaccinated against COVID-19 by the end of next year
    • Australia will be able to continue to contain any local COVID-19 outbreaks without further lockdowns
    • State borders will open by the end of this year, except for Western Australia
    • That Australians will spend money saved through tax cuts 
    • That businesses will take advantage of budget measures and hire staff and invest in assets 

Government’s debt position 

  • There will be a $213.7 billion deficit in 2020-21
  • The deficit will fall to $66.9 billion by 2023-24
  • Net debt will be $703 billion in 2020-21 (36 per cent of GDP). This is half of UK net debt and a third of US net debt
  • Net debt will peak at $966 billion in June 2024 (44 per cent of GDP)
  • It’s unusual that the more conservative side of politics has embraced debt, especially given their propensity for pushing for a surplus. However, it is widely agreed that debt is necessary under the current circumstances and borrowing costs have never been lower 

Population 

  • A million fewer people will live in Australia than previous forecasts this year, with Victoria to take the largest proportional population hit. International border closures and a drop in fertility are to blame 
  • Population growth is forecast to be 0.2 per cent this year 
  • Population growth is forecast to move into the negative for the first time since world war II in 2022, with 2.1 million fewer people than anticipated
  • Demand for entry into Australia for migrants has always outstripped caps on migrant numbers. Once international borders reopen, we can expect an influx of migrants. We can also expect the government to raise the cap on migrant numbers to offset any losses in previous years 

Tax cuts 

  • Tax cuts, worth about $12.5 billion over the next 12 months, have been brought forward two years to be backdated to July 1 this year for 11.5 million Australians
  • The threshold for the 19 per cent tax rate has been raised to $45,000 and the 32.5 per cent threshold raised to $120,000. For middle-income earners that’s a tax cut of $2,160 a year
  • The $1080 low and middle-income tax offset will be retained for an extra year
  • The third stage of the tax plan which will flatten the rate for everyone earning between $45,000 and $200,000 will start in 2024

Business initiatives 

  • To encourage business investment, businesses with a turnover of up to $5 billion will be able to write off the full cost of any depreciable asset they buy before June 30, 2022 (instant asset write off). This will cover 99 per cent of businesses and cost $26.7 billion
  • Small and medium businesses can carry back losses incurred to June 30, 2022 to offset profits booked since 2018-19
  • The government is hoping the measures will add 50,000 jobs, but this relies on businesses having the confidence to invest 

JobMaker, JobSeeker and JobKeeper

  • The JobMaker hiring credit subsidises businesses who take on young workers (16-35) who have been on JobSeeker, Youth Allowance or the Parenting Payment for at least one of the previous three months
  • The year-long subsidy will be $200 a week for those aged under 30, and $100 a week for those aged 30 to 35
  • New hires must work at least 20 hours a week to be eligible. Estimated to support 450,000 jobs. All businesses except major banks eligible
  • JobSeeker to be assessed at the end of the year 
  • JobKeeper will still end in March 2021
  • Young people have been more impacted by unemployment, so the measures are designed to rectify that, however, some critics have suggested that those over 35 will be disadvantaged

Infrastructure

  • $10 billion added to the decade-long infrastructure plan to build and upgrade roads, rail and bridges. This is expected to support 40,000 jobs
  • For “shovel-ready” projects there is an extra $2 billion for road safety upgrades and $1 billion for local councils to upgrade local roads, footpaths and street lighting – all on a “use it or lose it” basis. Projects will be accelerated 
  • A new 10-year rolling plan of priority water infrastructure projects will be developed with $2 billion set aside for dams, weirs and pipelines.

Housing 

  • The Australian Government has announced an additional 10,000 First Home Loan Deposit Scheme places will be provided for the 2020-21 financial year, to support the purchase of a new home or a newly built home
  • $150 million has been dedicated to an indigenous home ownership program
  • The national housing corporation will also be allowed to issue another $1 billion in bonds to encourage more investment in affordable housing construction

Health

  • $1.7 billion designated for COVID-19 vaccines plus $24.7 million to make sure there are enough syringes to deliver shots when they’re available
  • More money dedicated to mental health including a doubling of the number of Medicare-funded psychological services from 10 consultations to 20
  • 23,000 more aged care home care packages at a cost of $1.6 billion

Education & training

  • $1 billion in extra research funding for universities in the next year plus nearly $300 million for 12,000 new undergraduate places in 2021
  • $251.8 million over two years for 50,000 new higher education short courses in agriculture, health, IT, science and teaching
  • $1 billion JobTrainer fund providing free, or low cost, training places in areas of identified skills needs. This initiative was announced back in July
  • Wage subsidy for apprentices and trainees will be extended for new hires at a cost of $1.2 billion over the next four years

Manufacturing 

  • Manufacturers in priority areas including defence, space, food, recycling and medical products, will get $1.3 billion to help with research and expansion plans, with another $200 million in other initiatives for the sector. Most of the funding will be doled out over four years

Research & Development 

  • $2 billion has been committed to the R&D Tax Incentive (RDTI) scheme. The $4 million cap on RDTI refunds has been removed. The changes will now come into effect from July 2021
  • The CSIRO will receive $459 million over four years

Superannuation 

  • The government believes too many Australians are paying too many super fees. There will be tighter rules on funds and poor performing funds will be more accountable. A Your Super comparison tool will give Australians transparency about fees and returns. The goal is to reduce waste in the system and save $17.9 billion for Australians 

If you have any questions surrounding the 2020 budget, please get in touch with our team by clicking here

Suite 1, Level 6/309-315 George St, Sydney NSW 2000, Australia
and 5A/193 Darling St, Balmain NSW 2041, Australia

© 2018 ABN 14 625 010 344  All rights reserved | Privacy policy | Advisor Profiles: David Hancock

Google Review

Google Rating
5.0