The Federal Government’s 2021 Budget is a complex mixture of economic measures that continues its response to the implications of the Covid pandemic and also addresses some of the major social issues/needs that have been recently exposed and agitated.

As with all Budgets, what goes out is funded by what “income” comes in and increases in debt. In this Budget this is clearly the Government’s strategy for today, tomorrow is another problem.

That being said, the Government’s expenditure measures are reliant on a number of key economic contributors:

  • A reduction in the unemployment levels will drive increased personal tax revenue;
  • Covid vaccination rollout which hopefully will result in less economic disruption
  • Increased productivity attributable to those measures to assist women entering the workforce;
  • Increased tax revenues from the improved business profitability; and
  • Low interest rates charged on an increasing amount of Government debt

Greater cooperation by State Governments with regard to Covid management and border closures continues to be an economic threat.

The key message from the Budget papers and the Treasurer’s speech, is that the Government is prepared to “manage” substantial and ongoing budget deficit and the present government debt by fostering improvement in economic business prosperity, utilising the prevailing low interest rates and limiting ongoing economic disruption caused by Covid.

Whereas politically, the current Budget strategy is “out of character” for the Coalition, the economic flexibility highlighted in the budget should provide business with some confidence that the Government understands the broader issues facing the Country and shows it intends to manage the economy carefully (albeit with a possible eye on an election later in the year).

There are arguably some underlying issues with the Government’s economic management:

  • The social measures being introduced in this budget will be embedded in future budgets;
  • The level of government debt is unprecedented in Australia’s “non-war” period;
  • Lowering unemployment rates is dependent on the capacity of business to sustain growth, improve business profitability and the willingness of long-term unemployed to take up jobs on offer; and
  • No increase in economic disruption caused by a worsening Chinese trade relationship and the potential imposition of world-based climate change measures.

From a taxation perspective, the Budget principal measures include:

  • Continuation of the outright asset write-off for business with a turnover of less than $5bn for another year;
  • Loss carry back rules for corporate entities extended for a further year; and
  • Effective life rules introduced for intellectual property.

The proposed administration rules to manage the ATO’s small business debt management practices is well intentioned but misses the key issues of dealing with the ATO more generally.

There are a mixture of personal measures, taxation and more general measures that have a broader social context:

  • The personal taxation measures include the extension for a further year the low income tax offsets;
  • Ensuring superannuation contributions are now payable on incomes below $450 per month
  • There are a number of significant social programs:
    • Increased child care rebates for families;
    • Women’s health programs and domestic violence programs to assist women in need;
    • Increased expenditure for the aged care industry; and
    • Increase in expenditure to support mental health and suicide prevention programs.

As regards superannuation, other than the elimination of the $450 monthly threshold, the increase in the superannuation contribution to 10% was not mentioned, there are some other measures that will impact investment in housing:

  • Special programs for 1st home buyers can withdraw up to $50,000 from their superannuation fund;
  • A new Family Home Guarantee to support home buyers with a 2% deposit; and
  • Changes to the “downsizer” housing schemes allowing up to $300,000 to be a non-concessional superannuation contribution.

The Budget will not please everyone but has enough to satisfy the economic and social imperatives for the current time, pity help the next generation.

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