An economic and fiscal update and examining the 2020 budget

Jul 27, 2020

Welcome to Finance and Fury

Budget came out last week – this episode – go through the fiscal overview and the policy measures in it

 

Fiscal overview – provided updates on the government budget position and economic updates

1. Government – added $289 billion in fiscal spending and balance sheet measures - equivalent to around 14.6 per cent of 2019‑20 GDP
   85. At the same time - estimated large declines in taxation receipts has seen a major deterioration in the budget position, with estimated deficits of $85.8 billion in 2019‑20 and $184.5 billion in 2020‑21 – so the annual position is a loss
2. Gross debt was $684.3 billion (34.4 per cent of GDP) at 30 June 2020 and is expected to be $851.9 billion (45.0 per cent of GDP) at 30 June 2021. Net debt is expected to be $488.2 billion (24.6 per cent of GDP) at 30 June 2020 and increase to $677.1 billion (35.7 per cent of GDP) at 30 June 2021 – gross going up by 24% and net debt going up by 39%
3. Real GDP is forecast to have experienced its sharpest fall on record in the June quarter - expected to pick up in the September quarter and beyond, with the easing of restrictions in most parts of the country. Real GDP is forecast to fall by 0.25% in 2019‑20 and by 2.5% in 2020-21. In calendar-year terms, real GDP is forecast to fall by 3.75% in 2020, before increasing by 2½ per cent in 2021. The economy is forecast to recover faster than in past recessions due to the unwinding of restrictions, but it will be a long road back. The unemployment rate will remain elevated for some time.

The economic and fiscal outlook remains highly uncertain. The Government will provide forecasts and projections over the forward estimates period and medium term in the 2020‑21 Budget, to be delivered on 6 October 2020.

Table 1.2: Major economic parameters(a)        

	Outcome	Forecasts
	2018‑19	2019‑20	2020‑21
Real GDP	2.0	‑ 1/4	‑2 1/2
Employment(b)	2.5	‑4.4	1
Unemployment rate(b)	5.2	7.0	8 3/4
Consumer price index	1.6	‑ 1/4	1 1/4
Wage price index	2.3	1 3/4	1 1/4
Nominal GDP	5.3	2	‑4 3/4

 

Key policy measures – This is a delayed budget – not like a normal budget - A lot of it is specific to Covid – like health and stimulus to sectors of the economy

1. Health – major focus - committed $9.4 billion for the health response - large‑scale purchases of Personal Protective Equipment (PPE), boosting Australia’s testing capacity and ensuring access to essential health services through expanded telehealth.
   1. also investing in finding a vaccine and treatments for COVID‑19, as well as better preparing for future pandemics.
   2. The Government has boosted Australia’s testing capacity to meet the challenge of the COVID‑19 pandemic, including by establishing dedicated Medicare‑funded pathology tests and dedicated respiratory clinics, with coverage of 97 per cent of the population. The Government is also providing $3.7 billion to build our hospital system capacity
   3. Government has enabled whole‑of‑population Medicare subsidised telehealth for medical, nursing and mental health services
   4. The Government is working with Community Pharmacy and the medicines supply chain to ensure ongoing access to essential medicines to ensure that Australians in home isolation can continue to access the medicines they rely on
   5. In addition to the National Partnership Agreement on COVID‑19, the Government is investing $131.4 billion in Commonwealth funding for Australia’s public hospitals, an increase of 30 per cent over the previous five years, through the 2020‑25 National Health Reform Agreement.

Reopening recovery

2. JobKeeper payments – the payments to businesses significantly impacted by government restrictions to cover the costs of their employees’ wages
   3. over 960,000 organisations and over 3.5 million individuals covered - at 16 July, payments have totalled $30.6 billion over the six JobKeeper Payment fortnights to 21 June
   4. the Government announced the JobKeeper Payment will be extended to 28 March 2021 - Payment targeted to those businesses that continue to be most significantly affected by the economic downturn
   5. level of the JobKeeper Payment will be tapered in the December 2020 and March 2021 quarters to enable businesses to transition towards their long‑term recovery
   6. A two‑tiered payment will also be introduced from 28 September - better match the Payment with the incomes of employees before the onset of COVID‑19
   7. It is estimated that the total cost of the JobKeeper Payment will now be $85.7 billion over 2019‑20 and 2020‑21
   8. The review also found that the JobKeeper Payment has a number of features that may create some disincentives — for example, dampening incentives for some employees to work and for some businesses to consider their long‑term viability. While these are unlikely to be significant in the short term, the review considered that they are likely to become more pronounced the longer the program runs.
3. Support for individuals and households –
   16. income support payments - $16.8 billion over five years from 2019‑20
       2020. Coronavirus Supplement is $550 per fortnight from 27 April 2020 until 24 September 2020. From 25 September 2020 to 31 December 2020, the Supplement will be $250 per fortnight to reflect the gradually improving economic and labour market conditions. In addition, the personal income test for JobSeeker Payment and Youth Allowance (Other) will increase to a $300 per fortnight income free area and a 60 cent taper for income above the free area
       2021. Government has provided $9.4 billion for two separate $750 Economic Support Payments to social security, veteran and other income support recipients and eligible concession card holders. The first payment, made from 31 March 2020, provided $5.6 billion to over 7 million Australians - second payment commenced on 13 July 2020 and will benefit around 5 million recipients.
   17. Superannuation - individuals affected by the adverse economic effects - Government has temporarily allowed eligible individuals to access their superannuation early and tax‑free - extending the application period to 31 December 2020
   18. The Government has also provided assistance by: temporarily halving superannuation minimum drawdown requirements for the 2019‑20 and 2020‑21 income years - lower social security deeming rates to 2.25 per cent and 0.25 per cent respectively from 1 May 2020, taking into account the low interest rate environment and its impact on income from savings.

Support for businesses and employers -

1. Cashflow and write-offs - Eligible entities automatically receive payments of between $20,000 and $100,000 for the March to September 2020 reporting periods upon lodgement of relevant activity statements. As at 16 July 2020, over 750,000 entities have received over $16 billion in cash flow support – helps reduce GST
   1. includes deregulation measures to allow companies to hold meetings virtually and execute documents electronically, to modify continuous disclosure provisions to enable companies to more confidently provide guidance to the market, and to provide relief to directors from personal liability for insolvent trading.
   2. Government is backing businesses to invest by increasing the instant asset write‑off threshold to $150,000 (up from $30,000) and expanding access to include businesses with aggregated annual turnover of less than $500 million (up from $50 million)
2. Supporting Australians build their skills and return to work
   1. Funding additional training - $2 billion JobTrainer Skills Package establishes a $1 billion JobTrainer Fund and extends the Supporting Apprentices and Trainees wage subsidy
   2. The Government is also helping businesses keep apprentices and trainees employed. The Government’s initial $1.3 billion Supporting Apprentices and Trainees wage subsidy provides employers with 50 per cent of the apprentice or trainee’s wages for 9 months, up to $7,000 per quarter to support the continuity of training.
   3. Supporting Job Seekers Package - investing $159.5 million to assist job seekers to improve their employability and search for work, including $115.1 million to ensure job seekers can be connected to employment services at the earliest opportunity.
      1. providing job seekers with earlier access to Employment Fund credits, providing the Coronavirus Supplement to eligible New Enterprise Incentive Scheme participants and enhancing IT systems to streamline registration and referral processes in order to simplify income support claims
   4. Job‑ready Graduates Package focuses the public investment in higher education on national priorities and ensures the system delivers for students, industry and the community. The reforms will create more places at Australian universities for domestic students, with an additional 39,000 by 2023 growing to 100,000 in ten years — meaning that more Australian students will be able to get a university degree.
3. higher education - the Government has guaranteed $18 billion in funding for universities for 2020, and has provided greater flexibility in the use of this funding. In addition, the cost to study short, online courses through universities and private providers has been reduced to support Australians to upskill or reskill.
   1. Students studying courses in key growth areas will see significant reductions in their student contributions, including by around one‑fifth for science, engineering, health, and architecture, almost one‑half for education and nursing, and over one‑half for mathematics.

Infrastructure and housing sector spending  -

1. Infrastructure - The Government continues to deliver its $100 billion pipeline of investment in transport infrastructure. The Government will provide $2.0 billion over three years from 2020‑21 for priority regional and urban transport infrastructure across Australia to support local jobs and economic recovery post COVID‑19. This includes $1 billion for shovel‑ready projects and $500 million for targeted road safety works. It also includes $500 million to local governments for a new Local Roads and Community Infrastructure Program which will help local councils undertake priority projects focused on infrastructure upgrades and maintenance.
   1. The Government will also provide an additional $1.9 billion towards other infrastructure priorities, including $1.8 billion for the Sydney Metro‑Western Sydney Airport rail project.
2. Housing - The Government will invest $680 million in 2020‑21 through the HomeBuilder program
   1. This is the $25k grant if eligible to build or renovate -
   2. Aim to support jobs and the residential construction market by encouraging the commencement of new home builds and substantial rebuilds this calendar year. HomeBuilder will help to support around 140,000 direct jobs and around another 1 million related jobs in the residential construction sector. It is being implemented via a National Partnership Agreement, and all states and territories have signed up to deliver the program.

 

Covid specific policies -

1. The Government has established a $1 billion COVID‑19 Relief and Recovery Fund to provide direct support to the regions and communities most affected by the economic impacts of the pandemic, supporting a range of industries including the aviation, agriculture, fisheries, tourism, and arts sectors. Examples of support include:
   1. $110 million to reduce the cost of air freight, assisting Australian exporters to maintain markets and ensuring critical imports continue to be available
   2. $94.6 million for vital funding to exhibiting zoos and aquariums, including those in regional Australia
   3. $36.3 million in 2020‑21 to provide support to agricultural show societies to meet the costs incurred through shows cancelled at short notice.
2. Childcare - provided $1.9 billion to support the viability of the early childhood education and care sector and to provide families free childcare during the earlier stages of the pandemic. On 13 July 2020, the Government re‑established the Child Care Subsidy arrangements to ensure sufficient childcare places are available to all families and parents who wish to work.
3. Aviation - Government will provide $1.9 billion over four years from 2019‑20 - Australian Airline Financial Relief Package
   1. provides support for the sector through rebates and fee waivers for aviation fuel excise, airservices charges on commercial aircraft operators and domestic and regional aviation security charges
   2. The Government support is in addition to $428 million for the aviation sector that the Government will provide under the Relief and Recovery Fund
4. Aged care - The Government is ensuring the aged care sector is able to continue to provide care -the Government has provided $1.2 billion of direct assistance to support Australians in aged care including the provision of additional home care packages and additional funding to protect senior Australians in residential facilities.
5. Arts and entertainment - The Government has committed $250 million to support production and employment in the arts and entertainment sectors. The Government commitment is a targeted package to help restart the creative economy and get the entertainment, arts and screen sectors back to work, as they rebuild from the impacts of COVID‑19, which includes:
   1. The Government will also provide $400 million over seven years from 2020‑21 to attract overseas film and television production to Australia through the Location Incentive

 

Supporting the flow of credit

1. The Government, Reserve Bank of Australia, APRA and ASIC have teamed up to support the flow of credit in the Australian economy, in particular for small and medium‑sized enterprises (SMEs)
2. The Government has provided an exemption from responsible lending obligations for a period of six months in relation to the credit that banks and other lenders extend to their existing small business customers.
   1. SME Guarantee Scheme is supporting up to $40 billion of lending to help small and medium‑sized businesses get through -More than 15,600 small and medium‑sized businesses have accepted $1.5 billion in loans
   2. The Reserve Bank of Australia has implemented measures that have significantly reduced bank funding costs, including the Term Funding Facility which will provide at least $90 billion in funding at a fixed interest rate of 0.25 per cent
3. The Government’s Structured Finance Support Fund is providing up to $15 billion to the Australian Office of Financial Management to support continued access to structured finance markets used by smaller lenders providing both consumer and business credit

 

This budget is more retrospective in a way – update on what has been happening and what will happen to existing payments or policies – not like a normal budget that focuses on forward plans over the next few years – contains spending over the next year –

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