FEDERAL BUDGET 2021

Summary

The 2021/22 federal budget delivered by Treasurer Josh Frydenberg defined Australia’s recovery from the COVID crisis as its main priority, though creating jobs, extending tax cuts, providing targeted support to businesses, significant infrastructure spend and the vaccine rollout – with this continued fiscal support expected to drive growth and help gear Australia towards reopening its borders.

The numbers

• Australia’s deficit will reach $161 billion this year before falling to $57 billion in 2024/25. $52.7 billion below what was forecast in last year’s budget.
• The government forecast real GDP will grow by 5.25% during 2022, after it fell by 2.5% in 2021.
• Net debt will increase to $617.5 billion or 30.0% of GDP this year and peak at $980.6 billion or 40.9% of GDP in June 2025.
• Treasury forecast unemployment will fall below 5% by late 2022 and will reach 4.75% in the June quarter of 2023.

The headlines

• $1.9 billion allocated to the COVID-19 Vaccination Strategy and a further $1.5 billion to COVID health response measures.
• $7.8 billion has been dedicated to tax relief being offered to low and middle income earners.
• Businesses can benefit from further tax incentives, including asset-write offs, aiming to encourage investment, growth and hiring.
• To further boost job creation, the government committed to invest in infrastructure, housing, the JobMaker fund and apprenticeships.
• Around $1 billion has been set aside to implement a Digital Economy Strategy.
• In health $17.7 billion has been dedicated to the aged care system. $13.2 billion delegated to the National Disability Insurance Scheme and $2.3 billion towards a National Mental Health and Suicide Prevention Plan.
• The $450 threshold for mandatory superannuation contributions from employers has been scrapped.
• $1.7 billion flowing towards an increased childcare subsidy over five years, for families with second and subsequent children aged five years and under.
• Focussed measures targeting women’s safety, economic security and health and wellbeing

The Details

Personal Tax 

• More than 10 million low and middle-income earners are expected to benefit from the extended tax cut costing the government $7.8 billion, which will see individuals benefit by up to $1,080 or $2,160 for couples. The government expects the extra cash will flow towards businesses, encouraging more employment or investment – boosting GDP by around $4.5 billion in 2022-23.

Small Business

• The government extended its temporary full expensing of depreciable assets for businesses, with turnover or income below $5 billion. The measure introduced in last year’s budget will be extended for another 12 months.  This will allow more than 99% of businesses employing 11.5 million Australians to deduct the full cost of eligible depreciable assets of any value in the year they are installed until 30 June 2023.
• The temporary loss carry-back scheme will be extended by one year, allowing eligible companies to carry-back tax losses from the 2022-23 income year to offset previously taxed profits as far back as the 2018-19 income year. Companies with aggregated annual turnover of up to $5 billion can apply tax losses incurred during previous years to offset tax paid in 2018-19 or later years.
• There have also been eased tax and regulatory measures for foreign investors, including relaxed financial services licensing.
• The government is extending the Small and Medium Enterprise (SME) Recovery Loan Scheme, which builds on the SME Guarantee scheme, to support SMEs with a turnover of up to $250 million that were recipients of JobKeeper Payments in the March quarter of 2021, or were affected by the floods in March 2021 – located or operating in eligible Local Government Areas.
• SMEs will also be able to build their digital capacity through a $12.7 million expansion of the Digital Solutions – Australian Small Business Advisory Service, and $15.3 million to drive business uptake of e‑Invoicing.

Housing 

• The government outlined that measures implemented last year, such as First Home Loan Deposit Scheme and the HomeBuilder scheme, had helped contribute to the highest levels of first home buyer activity in 15 years – and as part of a move to help people surmount “the deposit hurdle”, new initiatives have been announced that will help more Australians own their own home.
• The government has established a new Family Home Guarantee, which aim to give 10,000 families with single parents, the opportunity to build a new home or purchase an existing home with a 2% deposit. It is estimated that around 125,000 single parents may be eligible, with around 84 per cent being female.
  • Starting on 1 July 2021, the new guarantee aims to support divorced or separated parents with dependent children by enabling them to purchase a home sooner with a deposit of as little as 2 per cent. The government will guarantee up to a maximum of 18 per cent of the property purchase price, allowing the applicant to get a loan without paying lender’s mortgage insurance.
  • Applicants must be Australian citizens, at least 18 years of age and have an annual taxable income of no more than $125,000.
• The New Home Guarantee (First Home Loan Deposit Scheme) that supports first home buyers in building a new dwelling or to purchase a newly constructed home by providing a guarantee to participating lenders for up to 15% of the property purchase price will be expanded for a second year, providing an additional 10,000 places in 2021-22.
  • “The New Home Guarantees will be made available from 1 July 2021 to 30 June 2022, enabling more first home buyers to build a new home or purchase a newly built home and enter the housing market sooner with a deposit of as little as 5 per cent,” the government said.
• The maximum amount of voluntary contributions that can be made under the First Home Super Saver Scheme has been increased from $30,000 to $50,000.

Infrastructure 

• The government has also committed $15.2 billion to new infrastructure projects around Australia, building on its $110 billion 10-year infrastructure pipeline. The commitments are expected to support more than 30,000 direct and indirect jobs.

Digital economy

• The government has placed $1.2 billion towards the creation of Australia’s digital future. It wants Australia to be a “leading digital economy and society” by 2030.
• One factor is the consumer data right (or open banking in the banking sector), which will continue to be implemented and the scheme is set to expand to the energy and telecommunications sector.
• Another component is the provision of $124.1 million to developing Australia’s artificial intelligence capabilities, including a push for small and medium sized businesses to adopt AI.

Aged Care

• The aged care package is one of the centrepieces of the budget with $17.7billion in practical and targeted new funding to significantly improve the system.

Superannuation

• The downsizer scheme, which allows people to make a one-off contribution to their super worth up to $300,000 after selling their home, has been extended to individuals aged 60 years old. Previously the eligible age for the scheme was 65.
• The government has also repealed the work test for voluntary non-concessional and salary sacrificed contributions to super. The work test required Australians aged 67 to 74 to work for 40 hours within 30 days to make voluntary contributions to their super (both concessional and non-concessional).
• The $450 earnings threshold has been scrapped, removing the need for workers to make more than $450 in a month for their employer to pay the superannuation guarantee.

Childcare

• More affordable childcare has been listed as a key measure, with $1.7 billion to be invested, building on the current $10 billion that is provided annually. The childcare subsidy annual cap will be removed from July 2022, allowing increased childcare subsidies to be available to families with two or more young children (250,000 families are projected to benefit).

Women’s economic security 

• With a focus on jobs, the government has also placed $12.2 million towards the National Careers Institute Partnership Grants Program, aiming for more career opportunities for women. The budget has also thrown $42.4 million towards supporting women to pursue careers in STEM.
• The government has also committed $164.8 million to financial support for women who escape family and domestic violence.