Where do we start?
There was no doubt heading into this year’s budget that this would be something different – the fact that it was delivered during daylight savings time as it was pushed back from May to October was only the start.
The economic impact of Coronavirus/COVID-19 has resulted in the economy contracting by a record 7% during the June quarter alone, and resulted in a forecast record deficit for 2020-2021 of $213.7 billion – equivalent to 11% of GDP.
That is not a typo – a $213.7 billion deficit. The magnitude of this size deficit cannot be comprehended compared to $40-$50 billion deficits delivered during the response to the GFC in 2009-2011, which at their peak were a comparatively small 4.2% of GDP.
The Government has already spent $507 billion since the onset of the pandemic, over half of which is direct economic support such as JobKeeper and the Cash Flow Boost, as well increases in JobSeeker.
Still, apparently things could be a lot worse. Compare Australia’s GDP fall of 7% to the falls of 12.2% in New Zealand, 11.5% in Canada, 13.8% in France, and 19.8% in the United Kingdom.
Is a deficit a bad thing? Certainly there is an argument that budget deficits are necessary to enable the economy to rebound and recover, particularly given the impact that 2020 has brought to Australia, and more particularly to regions such as Victoria which have endured more hardship than other states..
There is no doubt that with the economic damage that lockdowns, travel restrictions and social restrictions have created in both domestic and export trade, that it is going to take a record breaking effort to recover economically. A large part of this will be government investment into areas such as infrastructure and other initiatives in order to create jobs and to also build future benefits in the economy through these projects.
It may also take a monumental social effort to during the next few years for the country to work its way through the ongoing impacts and try and return some form of normality, whatever that may look like in the future.
How well this recovery takes shape, and at what speed the economy can recover, remains to be seen.
Specific budget measures
We have highlighted in the sections below the major announcements affecting individuals and businesses.
On top of these amounts, there have been major spending initiatives that will apply through various programs to industries such as agriculture, tourism, defence, health, child care, and other areas such as infrastructure, regional Australia, improvements to the adoption of digital technologies by Australian businesses, and various other payments and initiatives.
No doubt there will be further announcements as the details and conditions of eligibility for all of these spending initiatives are finalised. As the details are released, we will endeavour to keep you up to date with the myriad of changes that will come through.
The major announcement in the Budget is the bringing forward of tax cuts that were previously announced to commence on 1 July 2022, and they will now commence on 1 July 2020 (i.e. this financial year).
These changes are:
- increase the 19% tax threshold from $37,000 to $45,000
- The low income tax offset will be increased from $445 to $700
- Increase the 32.5% tax threshold from $90,000 to $120,000
- Retain the low and middle income tax offset of $1,080 for those on incomes between $48,000 and $90,000 (phasing out for incomes up to $126,000)
These additional tax cuts will be deliver tax savings of $1,080 for those on incomes of $45,000, and up to $2,430 in tax savings for those incomes of $120,000 and higher.
As these measures apply from 1 July 2020, this will immediately reduce the amount of tax withheld, thereby increasing take home pay once the legislation is passed in parliament.
Further economic support payments
The government will provide two separate $250 economic support payments, to be made from November 2020 and early 2021 to eligible recipients of the following payments and health care card holders:
- Age Pension
- Disability Support Pension
- Carer Payment
- Family Tax Benefit
- Carer Allowance
- Pensioner Concession Card
- Commonwealth Seniors Health Card holders
- Eligible Veteran’s Affairs payment recipients and concession card holders
Exempting granny flats from capital gains tax
The government will provide a targeted CGT exemption for granny flat arrangements where there is a formal written agreement. The exemption will apply to arrangements with older Australians or those with a disability.
Full depreciation on eligible capital assets For businesses with aggregated turnover of less than $50 million, they will now be able to deduct the full cost of depreciable assets acquired from 7:30pm on 6 October 2020 (Budget night), and first used or installed by 30 June 2022. This has removed the previous limit of $150,000 which was announced earlier in the year.
Temporary loss carry-back
Companies with aggregated turnover of less than $5 billion can apply tax losses against taxed profits in a previous year – losses from the 2019-20, 2020-21 or 2021-22 income years can offset previously taxed profits in the 2019-2019 or later income years. The tax refund will be available when the company lodges its 2020-21 and 2021-22 tax returns (i.e. no refund until July 2021 at the earliest).
Extension to JobKeeper
The extension to JobKeeper has been previously announced, and will extend JobKeeper to eligible businesses through to March 2021.
Boosting apprenticeships wage subsidy
From 5 October 2020 to 30 September 2021, businesses of any size can claim the new Boosting Apprentices Wage Subsidy for new apprentices or trainees who commence during this period. Eligible businesses will be reimbursed up to 50% of an apprentice or trainee’s wages worth up to $7,000 per quarter, capped at 100,000 places.
JobMaker Hiring Credit
The JobMaker Hiring Credit will be available to eligible employers who can demonstrate that the new employee will increase overall employee headcount and payroll, and they will receive $200 per week if they hire an eligible employee aged 16 to 29 years, or $100 per week if they hire an eligible employee aged 30 to 35 years.
The JobMaker Hiring Credit will be available for up to 12 months from the date of employment, with a maximum amount of $10,400 per additional new position created.
To be eligible, the employee will need to have worked for a minimum of 20 hours per week, averaged over a quarter, and received the JobSeeker Payment, Youth Allowance or Parenting Payment for at least one month out of the three months prior to when they are hired.