Federal Treasurer Josh Frydenberg recently released the Government’s interim Economic and Fiscal Statement which sought to reconcile Australia’s Budget position following $289 billion worth of COVID-19 measures.
As expected, the figures make for grim reading. The forecast is an underlying cash Budget deficit of $85.8 billion for 2019-20, rising to $184.5 billion for 2020-21 (or 9.7 per cent of GDP).
Gross debt is expected to increase to $851.9 billion (45 per cent of GDP) at 30 June 2021, while net debt will be $677.1 billion (35.7 per cent of GDP). Once the economic recovery is established, the Treasurer expects stronger growth and an improvement in the fiscal position to help stabilise government debt as a share of GDP.
Tax receipts have been revised down by $95.6 billion, being $31.7 billion in 2019-20 and $63.9 billion in 2020-21 due to the severe contraction in economic activity from the COVID-19 pandemic.
The outlook for tax receipts remains uncertain which reflects broader uncertainty around the economic outlook and how it interacts with structural and administrative features of the tax system, such as the ability of taxpayers to carry forward losses to offset future income. Total tax receipts, including GST and indirect taxes, are estimated to fall from $432 billion in 2019-20 to $416 billion for 2020-21.
The Economic and Fiscal Update outlines the key COVID-19 policy response measures announced by the Government since March 2020. The Treasurer said the Government has provided economic support for workers, households and businesses of around $289 billion (14.6 per cent of GDP) in response to COVID-19. The unemployment rate is forecast to hit 8.75 per cent in 2020-21.
The extension of the Government’s flagship JobKeeper program will be a lifeline for many Australians and their employers. Payments for eligible businesses will be extended for a further six months beyond its legislated finish date of 27 September 2020. The total cost of the JobKeeper regime, as extended, is now estimated to be $85.7 billion over 2019-20 and 2020-21. From 28 September, the fortnightly payment will be $1,200, and $750 for employees working less than 20 hours per fortnight, and from 4 January to 28 March 2021, the rate is $1,000 (or $650 for less than 20 hours per fortnight). Businesses will also be required to requalify by demonstrating an actual decline in turnover for payroll periods starting on or after 28 September.
Finally, new employees starting between 1 March 2020 and 1 July 2020 have been made eligible for JobKeeper payments from 3 August 2020.
More specific details of the new rules are progressively being announced.
Other measures announced as part of the mid-year update include:
Early super release of $10,000 extended – the Government will extend the application period from 24 September 2020 to 31 December 2020 for the early release of their superannuation (tax-free) for those dealing with adverse economic effects of COVID-19.
Personal income tax exemption for Operation Orenda – a full income tax exemption will be provided for the pay and allowances of Australian Defence Force (ADF) personnel deployed on Operation Orenda as part of the United Nations Multidimensional Integrated Stabilisation Mission in Mali. Date of effect: 1 April 2020.
Unclaimed superannuation transfers to KiwiSaver – the start date for the 2015-16 Budget measure to allow the ATO to pay lost and unclaimed superannuation amounts directly to New Zealand KiwiSaver accounts, has been revised from 1 July 2016 to 6 months after the date of Royal Assent of the enabling legislation (yet to be introduced).
The full Federal Budget announcement will be delivered on 6 October 2020, and we will update clients with further information when available.