Last night (6 October 2020) the Treasurer, Mr Josh Frydenberg handed down the 2020-21 Federal Budget, being the first Budget since the Federal Election in May 2019, and since the COVID-19 pandemic. This is also the first Federal Budget in 29 years to be announced during an economic recession.
Unsurprisingly, the projected cash budget surplus announced in last year’s Federal Budget has been abandoned. In the words of Mr Frydenberg, the economic response to the COVID-19 pandemic has come at a “significant cost”, with the deficit estimated to be $213.7bn for 2019-20, representing approximately -11.0% of estimated GDP. The budget position is predicted to improve over the forward estimates, with the deficit to be gradually reduced over the four years to 2023-24. The budget position over the forward estimates is as follows:
|% of GDP||-11%||-5.6%||-4.2%||-3.0%|
GDP is predicted to contract to -1.5% in 2020-21, a deterioration from the outcome of -0.2% for 2019-20. GDP is expected to grow to 4.75% for 2021-22 as the economy rebounds from recession. The unemployment rate for 2020-21 is forecast to peak at 8% in the December 2020 quarter, before falling to 6.5% by June 2022 quarter. The CPI is estimated to increase to 1.75% for 2020-21, up from the outcome of -0.3% for 2019-20.
This year’s Budget focuses on job creation and reducing the unemployment rate, with Mr Frydenberg stating in the lead up to handing down the budget “it’s our first, second and third focus”. This is evidenced by the fast-tracking of $7.5 billion in infrastructure projects across the Commonwealth, as well as support packages for the manufacturing and skills sectors.
The Budget also contains a plan to provide the economy a ‘kick start’, with individual tax rate cuts being fast-tracked to place more money back in people’s pockets and encouraging business investment with a ‘full value’ eligible asset write-off.
Mr Frydenberg said that “Tonight, we embark as a nation on the next phase of our journey. A journey to rebuild our economy and secure Australia’s future. Our plan will grow the economy. Our plan will create jobs. Our plan will continue to guarantee the essential services Australians rely on. Without increasing taxes.”
This Budget is potentially the most important for a generation, and was touted by some as being the most important since the end of the second World War. Undoubtedly the measures in this Budget will play a key role in Australia’s economic recovery.