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We have summarised the key points from the 2020-2021 budget, that we believe will have the most impact on our clients.
Please keep in mind that all budget measures are proposals and will require the passage of legislation to become effective.
The Federal Government last night brought down a historic stimulatory budget not seen since the ending of the second World War.
The COVID -19 pandemic has had a profound impact on the Australian economy and its health system, last nights budget was designed to provide the necessary stimulus to lead the economy to recovery of the next 4 years.
According to Treasury the Australian economy is expected to contract by 1.5 % this financial year and rise by 4.75% in the 2021/2022 financial year. The Government expects that growth will continue for 2022/2023 at a rate of 2.75% and 3.0% for 2023/2024.
Treasury has further advised that unemployment is expected to rise to 7.5% by mid 2021 before declining to 6.5% by mid 2022, unemployment is not expected to fall to 4.5% until mid 2024.
The Government expects that government spending and fiscal support for the economy will lead to a deficit in 2021 of 11.1% of GDP or $214b for the 2020/2021 financial year. Further the government expects further deficits over the next few years, although declining with a deficit of 2.7% of GDP or $49.5b in 2023/2024. These deficits will have a significant impact on Australia’s debt levels rising to 43.8% of GDP by 2023/2024 or approximately $950b.
Although the level of debt that Australia will incur over the coming years is significant and unseen before, this level of debt is still significantly smaller than other OECD countries in particular the UK and USA.
The global economic outlook is expected to be bleak with global economic output expect to decline by 4.5% in 2020, however some of this impact will be softened to Australia as China, Australia’s major trading partner, is expected to grow by 5.75% in 2021. China accounts for one third of Australia’s trade.
The levels of deficits and national debt forecast by the Government are unpinned by the substantial fiscal support the government has and will be providing to the economy now and for some years to come. The main focus of the Governments plan is ensure that as many businesses survive the economic downturn as possible to ensure that those businesses continue to employ and at the same time invest in important infrastructure projects to create new jobs.
These initiatives include $1.3b for Governments modern manufacturing plan targeting 6 national manufacturing priorities which are:
Further the government intends to provide $14b for new and accelerated infrastructure projects, $2b for water infrastructure, $2b for research and development incentives together with additional funding for CSIRO and universities.
The Government has also announced additional funding for regional Australia with $200m for Building Better Regions Fund, $220m investment in improved internet and mobile services and $100m in Regional Airports infrastructure upgrades.
We must remind ourselves that these are historic times caused by a once in a century pandemic, the budget last night is the right response to the current circumstances.
If you have any questions or concerns about the proposals from the Federal budget announcements, please contact your Ulton Advisor to discuss.
Want to learn more about the other announcements from the 2020 budget? We have broken the full budget down into 6 main categories for usability.
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