OVERVIEW

A Budget for business led economic recovery:  The Federal Treasurer tonight charted a fresh fiscal course, with an improved economic outlook, a relentless focus on jobs and clear support for business and sectors doing it tough. This year’s deficit will reach $161 billion - $52.7 lower than was predicted just 6 months ago. 

  • Continued fiscal support until "unemployment has a four in front of it": the Budget surpassed Business NSW’s call for fiscal support until the unemployment rate is returned to below 6 per cent, setting a target for unemployment under 5 per cent. There remains considerable spare capacity in the economy and tonight’s measures are configured to boost jobs and increase economic activity.
  • Business is central to recovery: with continued investment incentives, skills initiatives, direct support for employers, business tax cuts and strategies to boost our manufacturing sector. Businesses will also benefit indirectly from personal income tax cuts, infrastructure spending and fiscal support to boost public demand.
  • Skills the key to recovery: Almost every major announcement in the Budget will be constrained by critical skills shortages in many of the industries targeted in the Budget including Health, Aged Care, Childcare, Construction. To address this, the Government has extended the JobTrainer Scheme, allocated training places for the Aged Care sector and extended the Boosting Apprentice Commencements (BAC) subsidy to 31 March 2022. Of note, international borders are not expected to reopen until at least mid-2022.
  • An economy still under a cloud: For all the Treasurer’s positivity, the Australian economy remains overshadowed by Covid-19. While a further $1.9 billion has been allocated for the roll out of vaccines, improvements to quarantine and vaccination programs are still necessary to reintegrate Australia into the global economy. 
  • Infrastructure pipeline fully stocked, but workers in short supply: The Budget has added $15.6 billion in major infrastructure commitments – a $110 billion pipeline over the next decade, with upgrades to Newcastle Airport and a new tunnel under the Blue Mountains highlighting the announcements. However, even prior to Covid-19, skills shortages were a major constraint on infrastructure development. Re-opening international borders and re-skilling the economy are essential to deliver the Government’s ambitions. 
  • Missing in action: The wait goes on for key business priorities including Commonwealth support for reforming payroll tax, stamp duty, and the industrial relations system.

FISCAL AND ECONOMIC OUTLOOK


  • Stronger-than-expected recovery: the economic recovery has been stronger than anticipated, outperforming all major advanced economies in 2020. GDP is anticipated to rebound strongly to 5.25 per cent in 2021 and 2.75 per cent in 2022. 
  • A two-speed recovery: The headline figures the Treasurer cited were strong but conceal a diverging business environment. While overall business confidence and profitability are high, the story for small and medium sized businesses is quite different. 
  • Unemployment rate below 5.0 next year: Since the downturn, almost one million jobs have been recovered. Unemployment has fallen rapidly and is set to recover five times faster than the last recession in 1990s, reducing the potential for long-term scarring of the labour market. The unemployment rate is forecast to fall to 5.0 per cent in mid-2022 before falling further to 4.75 per cent in mid-2023. This will be the first time since the early 1970s that unemployment has dropped below 5 per cent.
  • Debt and deficit: Australia is now expected to reach a deficit of $106.6 billion (5.0 per cent of GDP) in 2021-22 before improving to $57.0 billion (2.4 per cent of GDP) in 2024-25. Net debt is expected to be 30.0 per cent of GDP (down from an expected 36.1 per cent of GDP) at 30 June 2021, peaking at 40.9 per cent of GDP by 30 June 2025. Net debt is then projected to fall to 37.0 per cent of GDP by 2031.

HIGHLIGHTS FOR BUSINESS

  • Tax Cuts for Business: temporary full expensing will be extended to 20 June 2023. Temporary loss carry-back is also being extended to include the 2022-23 income year. This will deliver an extra $20.7 billion in tax relief to businesses over the forward estimates period. New measures have been introduced to encourage business R&D activity.
  • Simpler handling of tax disputes: For businesses with tax debts, it will be simpler faster and cheaper to pause or modify ATO debt recovery actions with the AAT empowered to pause or modify such actions including an avenue to ensure payments are not required until the matter is settled by the new umpire.  
  • Skills and training: the JobTrainer program will be extended for another 12 months. This program is half-funded by states and territories and therefore will require further agreement. It is anticipated that it will deliver around 163,000 additional low fee and free training places in areas of skills need, such as health, aged and disability care, childcare and trades. Note: this is not new money as the extension will be funded from funds originally allocated to the unsuccessful $4 billion JobMaker Hiring Credit program. 
  • Apprentice and trainee subsidy: the Government’s response to our calls for a skills package in last year’s Budget, the Boosting Apprentice Commencements (BAC) subsidy, has been hugely successful and further extended for 6 months for new apprentices or trainees commencing before 31 March 2022. The subsidy remains capped at $7,000 per quarter per apprentice or trainee. The Budget also delivers pathway services for 5,000 women to commence non-traditional apprenticeships.
  • International borders and migration: The Budget assumes a gradual return of temporary and permanent migrants will occur from mid-2022. It also states that small phased programs for international students will commence in late 2021 and gradually increase from 2022. Existing work hour caps for Student Visa holders employed in the tourism and hospitality sectors will temporarily be removed. 
  • Support for businesses helping people into work: Wage subsidies available through jobactive, Transition to Work and ParentsNext will be increased to $10,000 and the Local Jobs Program will be expanded and extended to 51 employment regions.
  • Childcare: The Commonwealth Government’s announcement of a $1.7 billion childcare package aims to increase employment and workforce participation by reducing out-of-pocket childcare costs for working families. However, childcare workers are in short supply and it is unclear how the increased demand for childcare places will be met.
  • Targeted support for worst-hit sectors: The Budget provides $2.1 billion in targeted support for aviation, tourism, the arts and international education. This includes $274.6 million to support businesses such as zoos, aquariums, events providers and travel agents, as well as continuing support for half-priced airfares. The SME Recovery Loan Scheme replaces the SME Guarantee scheme, to provide credit to firms that received JobKeeper in the March quarter 2021 or were affected by floods in March.
  • Housing: The Budget provides more support for people buying homes, with packages for single parents and first home buyers.  However, putting even more emphasis on demand side support without freeing up additional supply at the state and local levels is unlikely to alleviate housing shortages.  

NSW IN FOCUS

  • Opening the Hunter to the world: the Budget will upgrade Newcastle Airport runway to international standards, with added capacity to take long-range aircraft. This will generate substantial new economic activity, with forecast creation of 4,400 jobs and a total injection of $12.7 billion into the regional economy over 20 years.
  • Major roads upgrades: a $2 billion upgrade to the Great Western Highway provides a major improvement for connectivity to Lithgow, Bathurst, and the Near West. $500 million for Princes Highway Corridor upgrades and direct funding of improvements to the M5 East at Moorebank is directly aimed at congestion busting. Upgrades to the Picton Road at the Mount Ousley Interchange will remove a key economic pinchpoint for heavy vehicles heading south from Sydney to the Illawarra and Shoalhaven and eliminate the current dangerous interchange.
  • GST: NSW’s share of the GST pool will be $21.9 billion, up from $17.5 billion in last year’s Budget. The faster-than-expected recovery has boosted the GST pool, supplemented by extra allowances from the Commonwealth of $600 million per year until 2024-25.

For more information from Business NSW, please contact:

Ben Pike, Executive, Marketing & Media Ben.Pike@businessnsw.com

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