Australia Unveils Expansionary Budget As Jobs Remain Key Focus
- Published on
- 11 May 2021, 07:35 PM
By Sophia Rodrigues
(Canberra, May 11, 2021)—The Australian government has unveiled an expansionary budget, using the economy’s stronger-than-expected growth momentum to increasing spending in the economy and creating jobs, rather than focusing on narrowing deficit.
“Our plan to secure Australia’s recovery will create more jobs, rebuild our economy and set the country up for the future,” Treasurer Josh Frydenberg said in the opening line of his 2021-22 budget speech on Tuesday.
Following the spending measures announced in the budget, the total direct economic support since the onset of the pandemic has increased to A$291 billion or 14.7% of GDP. This includes A$41 billion since the 2020-21 MYEFO.
The total direct economic and health support works out to A$311 billion or 15.7% billion of GDP, an increase of A$44 billion since the 2020-21 MYEFO.
The budget is forecasting underlying cash deficit of A$161 billion for 2020-21, compared with A$197.7 billion at the 2021-21 mid-year budget statement (MYEFO) published in December, and A$213.7 billion at the 2020-21 budget.
For 2021-22, the deficit is expected to narrow to A$106.6 billion vs A$108.5 billion forecast at the MYEFO. The 2022-23 the deficit is expected to narrow to A$99.3 billion but this is wider than A$84.4 billion forecast at the MYEFO. By 2024-25, the deficit is projected to be A$57.0 billion.
Net debt is expected at A$617.5 billion by the end of this fiscal year vs A$691.8 at MYEFO. However, this is expected to rise to A$729 billion by 2021-22 and to A$980 billion by 2024-25.
As a proportion of GDP, net debt is expected to reach 34.2% by June 2022, and further to 40.9% by June 2025.
BOOST TO HOUSEHOLDS, INVESTMENT
A key focus of the budget is to reduce the unemployment rate which is forecast to fall below 5% by late-2022. The economy is forecast to grow by 5.25% in 2021 and 2.75% in 2022.
Important measures to boost the economy and create jobs include tax offset to low and middle-income earners, an extension of another year for full expensing of eligible depreciable assets and loss carry back measures for companies.
Other measures include a doubling in commitment to the JobTrainer Fund, increasing spending for child care and aged care, additional infrastructure commitment, and more spending and incentives to boost manufacturing.
The budget made an upward revision to revenue – the largest in the past decade -- on the back of the economy’s recovery following the COVID-19 downturn.
The upward revision is driven by a rise in company tax receipts and GST receipts due to the stronger economic recovery and elevated iron ore prices and rise in domestic consumer spending. The rapid recovery in the labour market has supported higher personal income tax receipts and this is expected to drive higher prices and wages growth over the latter half of the forward estimates period, further supporting personal income tax receipts.
This has been offset by significant additional Government support for the economic recovery through tax relief for households and businesses. Policy decisions are expected to reduce tax receipts by A$22.6 billion over the four years to 2023-24.
After accounting for policy decisions, compared to the 2020-21 Budget, total tax receipts have been revised up in each year of the forward estimates and by a total of A$84.5 billion (or 4.8%) over the four years to 2023-24.
Still, expected tax receipts remain well below the levels predicted prior to the onset of the COVID-19 pandemic and the outlook remains more uncertain than usual given a number of factors, such as the potential build-up of tax losses, that may weigh on future tax collections.
--Contact: Sophia@centralbankintel.com