A STRONG PRESCRIPTION FOR ECONOMIC SHOCK

OUR VERDICT

ABN: 96 929 977 985 ACN: 099 891 611 
Copyright © 2020 Chamber of Commerce and Industry of Western Australia

THE BIG NUMBERS

Australia’s economy is now expected to contract by 1.5 per cent in 2020-21. That will be one of the country’s most significant economic contractions in living memory and follows a 0.2 per cent contraction in 2019-20. 

The contraction in Australia’s economy is primarily driven by falls in consumption and investment. While government support has helped to offset the declines in activity in the private sector, that support can only do so much. 

The impact on the jobs market has been equally devastating. The unemployment rate is expected to reach 7.25 per cent in 2020-21, with total employment expected to grow by 2.75 per cent. 

The impact of the COVID-19 pandemic and the scale of the Government’s economic response has also seen a dramatic change in the fiscal outlook. 

After years of budget repair, the need to support the economy through the pandemic has reversed all those gains, with Australia recording a budget deficit of $213.7 billion. 

Net debt meanwhile is expected to grow to $966.2 billion by 2023-24. Working in Australia’s favour is the fact that our net debt to GDP ratio is much smaller than other countries, and the fact that the cost of servicing debt is currently very low thanks to low-interest rates. 

The economic and fiscal outlook remains highly uncertain.

FEDERAL BUDGET ANALYSIS 2020

The Federal Budget had two key tasks. The first was to provide short-term support to the economy to shepherd it through the current crisis, with a clear transition pathway off that support.  

On this, the Federal Government has delivered.

Short-term support measures include wage subsidies for apprentices and new young hires, $1.1 billion for infrastructure investment in WA and generous businesses investment incentives.

And while gross debt is now expected to exceed $1 trillion next year, the Government has committed to not increase taxes and to continue supporting the economy until the unemployment rate is under 6 per cent. In the meantime, record-low interest rates mean the burden of repaying that debt is actually lower than it has been in recent years.

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HOUSEHOLD SUPPORT

STRONG PRESCRIPTION FOR ECONOMIC SHOCK

ABN: 96 929 977 985 ARBN: 099 891 611 

Copyright © 2020 Chamber of Commerce and Industry of Western Australia

Accelerated income tax cuts will bolster household incomes and help to offset the looming fiscal cliff.

The Government’s Stage 2 income tax cuts have been brought forward and backdated to July 1 this year, meaning Australians will receive an almost immediate reduction in their tax bill as soon as the legislation is passed. Key changes include: 

  • Expanding the low-income tax offset from $445 to $700

  • Increasing the upper limit of the 19 per cent tax bracket from $37,000 to $45,000

  • Increasing the top threshold of the 32.5 per cent tax bracket from $90,000 to $120,000 

The Government will also provide a one-off benefit to low and middle-income earners worth up to $1,080 for individuals or $2,160 for households.

The final stage of the Government’s income tax cuts is set to be introduced from July 2024. It will abolish the 37 per cent marginal tax rate and create a 30 per cent tax rate for all money earned between $45,000 and $200,000. 

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RETROSPECTIVE INCOME TAX CUTS

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INFRASTRUCTURE

The Government’s investment in high-quality infrastructure will enable economic and productivity growth and improved quality of life for Western Australians.

The Government’s $1.1 billion investment in transport infrastructure provides a welcome boost to the WA economy as we emerge from COVID-19. 

Funding for road and rail initiatives, including $227 million in new funding for Metronet, $88 million for the Reid Highway interchange with West Swan Road, and $70 million for Roe Highway widening and the Abernathy Road Upgrade, will help improve business productivity and support economic growth. 

In the regions, investment in projects such as the Wheatbelt Secondary Freight Network, upgrades on the Broome-Cape Leveque road, and improvements to the Goldfields Highway between Wiluna and Meekatharra will ensure business, tourism and commuter traffic flow more freely. 

$327.5 million is being provided for the Perth City Deal to re-energise the CBD, worth a total $1.5 billion. This will fund key projects under the deal, including moving the Edith Cowan University campus to the CBD by 2025. The inner-city campus is expected to have significant flow-on benefits for small businesses.

The Government has also announced a $4.5 billion network investment plan. This includes a $3.5 billion upgrade to the NBN by 2023, up to $700 million to make business-grade fibre services more affordable and accessible, and $300 million for partnering with governments and local councils to improve regional broadband. 

$1.1 BILLION INVESTMENT IN WA FOR NEW TRANSPORT INFRASTRUCTURE

PERTH CITY DEAL TO RE-ENERGISE CBD

$4.5 BILLION NETWORK INVESTMENT PLAN TO UPDATE NBN ACROSS THE COUNTRY

MANUFACTURING

The Government’s $1.5 billion Modern Manufacturing Strategy will supercharge the nation’s advanced manufacturing sector and has innovation at its core.

$1.5 billion will be invested over the next four years in the Modern Manufacturing Strategy. 

WA’s small but vibrant manufacturing sector, where many businesses are already implementing advanced manufacturing approaches to stay ahead of the pack, will directly benefit from this funding. 

The strategy includes the Modern Manufacturing Initiative, which will provide $1.3 billion co-funding for large manufacturing projects across the National Manufacturing Priorities: resources technology and critical minerals, food and beverage, medical products, recycling and clean energy, defence and space. The Government’s co-investment is aimed at helping Australian manufacturers scale-up, collaborate and commercialise new ideas.

$52.8 million is also being provided for individual businesses in priority sectors to update and modernise their operations through the Manufacturing Modernisation Fund. 

A further $107 million will go towards a ‘Supply Chain Resilience Initiative’, aimed at supporting projects that address an identified supply chain vulnerability. 

$1.3 BILLION MODERN MANUFACTURING INITIATIVE

$52.8 MILLION FOR INDIVIDUAL BUSINESSES IN PRIORITY SECTORS

$107.2 MILLION FOR PROJECTS ADDRESSING SUPPLY CHAIN VULNERABILTY

SKILLS & EMPLOYMENT

Direct support for employers to take on new apprentices and trainees is essential for our recovery.

WA has a relatively high demand for trade skills compared to other States and Territories, including in our critical mining sector. But the COVID-19 pandemic has damaged WA’s already fragile training pipeline. And while headline youth unemployment has nearly recovered to pre-pandemic levels, this has been driven by a large increase in part-time roles. Young people are missing out on the full-time opportunities they need to improve their future career outcomes. 

The Government’s expansion of the current apprentice wage subsidy program to any business who engages a new apprentice or trainee will assist more businesses to grow their skilled workforce. This is vital to reversing the long-term decline in commencements and fuelling a strong recovery from the COVID-19 recession. 

Complementing this measure is WA’s share of the JobTrainer Fund, aimed at delivering free, or low cost, training places in areas of identified skills needs. This will further enhance businesses’ access to the skills they need to succeed. To ensure the maximum effectiveness of this program, States — not the Commonwealth — should decide what training is funded. This will ensure local needs are met. 

Businesses will also be encouraged through the JobMaker program to give unemployed people under 35 a go with a $200 per week wage subsidy for people aged 16-29 and a $100 per week subsidy for those aged 30-35. This support will be essential to getting even more young people back into work. 

$1.2 BILLION IN WAGE SUBSIDIES TO SUPPORT 100,000 NEW APPRENTICES AND TRAINEES

$4 BILLION OVER THREE YEARS TO REDUCE YOUTH UNEMPLOYMENT

The scale of the expected economic damage has been confirmed. The Government has now shifted its focus from repairing the Budget to repairing the economy.

A return to surplus in 2019-20 will pave the way for future investment in infrastructure, hospitals and schools and boost confidence in the nation’s economic outlook.

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BUSINESS INCENTIVES

The measures announced by the Government will leverage private-sector investment to lift the economy out of the doldrums.

The Government is expecting that economic activity will pick up from late 2020 and into early 2021, with business confidence and growth buoyed by the Government’s economic measures.

These measures include a temporary tax incentive, available to 99 per cent of businesses, that allows them to deduct the full cost of eligible depreciable assets of any value in the year they are installed.

There is also provision for companies with turnover up to $5 billion to offset losses against previous profits on which tax has been paid, to generate a refund. Losses incurred up to 2021‑22 can be carried back against profits made in or after 2018‑19.

Planned cuts to the research and development tax incentive have also been reversed, with an additional $2 billion committed to help innovative businesses that invest in research and development.

Tax concessions will be extended for businesses with a turnover of between $10 million and $50 million, including allowing the immediate deduction of certain start-up expenses and prepaid expenditure, various fringe benefits tax exemptions and access to simplified trading stock rules.

The Government’s Digital Pulse Plan includes measures to shift interactions with Government online and support businesses to digitalise. This includes a Digital Identity system, allowing businesses to update business registry data online, and mandating electronic invoicing by Government. Funding will be provided for 5G trials in key industry sectors and to expand advice and training for small businesses wanting to digitalise. A wide range of regulatory processes will be streamlined and digitised.

These measures come in addition to changes announced before the budget to support businesses’ survival through the crisis and stimulate business investment. This includes changes to the insolvency system to allow businesses with liabilities of less than $1 million to remain in control of their company, rather than immediately being placed in the hands of an administrator or creditors. There will also be reforms to responsible lending obligations to allow credit providers to rely on the information provided by borrowers unless there are reasonable grounds not to.

TEMPORARY TAX INVESTMENT INCENTIVE FOR 99 PER CENT OF BUSINESSES

TAX LOSS CARRY-BACKS FOR AROUND 1 MILLION COMPANIES

EXTENDING TAX CONCESSIONS TO SMALL BUSINESS

$2 BILLION RESEARCH AND DEVELOPMENT TAX INCENTIVE

$50 MILLON FOR WA THROUGH THE JOBTRAINER FUND

ENABLING BUSINESS TO DIGITALISE AND REDUCING RED-TAPE

HEALTH AND COMMUNITY

Additional funding for aged care and disability services will support WA’s most vulnerable.

The COVID-19 crisis has confirmed how vital it is to have a strong economy that can continue to guarantee the delivery of essential services.

To support senior Australians who wish to stay at home for longer the Government is providing $1.6 billion for an additional 23,000 home care packages. This means the number of home care packages will have increased threefold from around 60,300 in 2013 to around 185,500 in 2021.

Alongside this, a further $11.3 million will be provided for additional training and support for aged care providers and carers of people living with dementia. 

The Government has said its response to the Aged Care Royal Commissions’s final report in February next year will involve significant additional investment.

The Government is providing a further $3.9 billion for the NDIS. This extra funding ensures Australians eligible for the NDIS have access to the supports they need now and into the future. The Government says this funding is guaranteed to be spent on disability services.

An unprecedented $5.7 billion will be spent on mental health over the 2020-21 financial year – providing vital support for small business owners and sole traders to take care of their own and their staffs’ mental health.
 
The Government has also provided an additional $1 billion through the National Housing Finance and Investment Corporation to support the construction of affordable housing. 

WA’s health and community services providers will welcome this additional funding.

$1.6 BILLION FOR 23,000 EXTRA HOME CARE PACKAGES

ADDITIONAL $3.9 BILLION FOR THE NATIONAL DISABILITY INSURANCE SCHEME

The second task of the Budget was to take the initiative to set up our economy for future growth.  

On this, the Budget has done good things. But there is much more to do. 

Australia needs structural reform that permanently reduces the tax burden on business, to generate investment and attract foreign capital.

We need to reform our outdated system of industrial relations, which is a straitjacket on business innovation. And we need to steal a march back into global trade and investment markets.

WA has an opportunity to leverage its success in managing COVID-19.

Being open to the world and pushing for reform to encourage investment would help us to realise that opportunity.