Federal Budget 2020/2021

Falling off a Cliff Budget Balance

This year’s budget was always going to be big on spending but we were unsure how big. To get through this pandemic the government has opted for a jobs focused budget with broad support across many industries. On a cash basis for 2020-21 the government shortfall is around $213 Billion, which equates to 7.7 Million cars at $30,000 each.  Below is a graph of our Fiscal Balance Budget.

Economic Environment

 The economic environment has deteriorated in April to June 2020 period  down 6.3% on an annualised basis. We have our fingers crossed that a rebound will happen in the next quarter.

Some of the Key Points:

Employment & training

 Its predicted that 450,000 jobs to be created from the $100 to $200 a week hiring credit for people under 35 off JobSeeker, this is a significant help for employers, especially small to medium sized businesses where this is a significant percentage of weekly wage. JobTrainer steps up and extends training places by 340,000, and targets an additional 180,000 new apprentice and trainee jobs. 100,000 jobs will have a 50% subsidy, will this work I am yet to be convinced. Without confidence in the market and jobs to go to then why would an employer add additional staff members that are untrained ?  

Housing Construction

An additional 10,000 first home buyers will be bribed by federal government support. This will also include a lower 5% deposit for some. The new construction will be significant but if it necessary we will see, low immigration and a decreasing population could impact this. Its believed that $800m is to be generated from increased housing construction, which has an important multiplier effect for furnishing and appliances in new housing. There will be an increased $1b government guarantee for the national Housing Finance and Investment Corporation.

Healthcare

Healthcare will get a significant boost of $4.9 million across a range of health measures from hospitals, vaccine access, telehealth, mental health and COVID-19 testing. Aged care receives $746.3m for additional home care places, aged care worker training and provider support. This is welcomed news for people working at phycologists and physiatrists who are certainly over worked at the moment. Just giving our medical clients a high five for the important work they are doing.

Bringing Forward of Personal Tax Cuts

The Government has brought forward the stage 2 tax cuts previously announced to 1 July 2020. The 19% tax bracket will rise from $37,000 to $45,000, while the 32.5% bracket will increase from $90,000 to $120,000. The top marginal tax rate will continue to apply to taxable income greater than $180,000. The stage 3 tax cuts are unchanged and scheduled to apply from 1 July 2024.

Temporary Loss Carry Back Measures

Corporate tax entities with an aggregated turnover of less than $5 billion will be able to apply tax losses from the 2019-20 to 2021-22 income years against previously taxed income in 2018-19 or later income years. The tax refund will be available on election by corporate tax entities when they lodge their 2020, 2021 and 2022 tax returns but the refund claimed cannot be greater than the amount of company tax paid in the income year and the balance of their franking account. This measure is certainly welcomed for businesses.

Fringe Benefits Tax Changes

From 1 April 2021, businesses with an aggregated annual turnover of up to $50 million will be exempt from FBT on car-parking. This is a helpful concession as it removes the multiple methods for calculating FBT on car-parking that previously applied. Other changes include:

·       an FBT exemption for employers who provide retraining and reskilling benefits to employees who have been made redundant or are soon to be redundant.

·       Provide the Commissioner of Taxation with a power to rely on existing corporate records rather than rely on employee declarations. This will be a welcome change for employers who otherwise must follow-up the employees for signed declarations.

After everything that has been laid out by the government its certainly a big play before the next election. Some of the issues we see that could drag this down is  business confidence, insolvencies and mortgage stress which we have seen a large increase since the pandemic

To borrow a quote from A. Gary Shilling – “Markets can remain irrational longer than you can remain solvent”.

Talk to your accountants and financial advisers who can certainly assists with your decisions.

It is not intended as legal, financial or investment advice and should not be construed or relied on as such. Before making any commitment of a legal or financial nature you should seek advice from a qualified and registered legal practitioner or financial or investment adviser. Laz

References

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