This year’s budget is firmly focussed on supporting Australia’s recovery from the first recession since 1991 and worst economic performance since 1959. Real GDP is projected to shrink by 1.5% in 2020-21 and the unemployment rate is set to peak at 7.25% before rebounding in the following years.

Given the fall in tax revenue and increase in spending, the 2020-21 budget is projected to be in deficit by $213.7 billion, falling to $66.9 billion by 2023-24.

Central to the Government’s plans for economic recovery is the JobMaker package, which includes significant tax relief measures for households and businesses, a boost to infrastructure investment and a hiring credit for new employees.

This was a historic budget by any measure. Most notably it marks a shift away from years of budget repair to a ‘pro-growth’ agenda. Investors should take confidence from what is a clear plan to materially reduce unemployment from current levels, bolster the recovery via a suite of business incentives and ultimately lift the economy out of recession.

The economy is not the equity market, and this is why the market is only around 10% off its YTD highs while the economy has fallen substantially. This budget will go a long way towards restoring both consumer and business confidence in respect of the backstopping from government. This does not mean all the pain has been removed, there will be weaker spending, rising unemployment and business insolvencies as the government remove temporary support measures.

The Government has successfully minimised the downturn and is now on a path to growth and stabilisation and are showing a willingness to kick-start a recovery which is positive for investors.

Below is a list of Budget winners and losers, if you would like a detailed overview of each policy, please reach out.

Winners

• Low/Middle income earners– pull forward second stage of Personal Income Tax Plan, retain low and middle income tax offset (LAMITO).
• Businesses – heavily incentivised to hire younger staff (JobMaker, apprenticeships), cash flow boost from instant asset write-offs and $2b for R&D Tax Incentive.
• Infrastructure– $10b in funds available to the states, focus on ‘shovel-ready’ projects (roads, councils).
• Property– expansion of the First Home Loan Deposit Scheme (FHLDS) and CGT relief for granny flats.

Losers

• High income earners – tax relief remains long-dated (2024) with no pull forward as initially speculated.
• Welfare– the transition away from JobKeeper will be difficult for those that may not have a job to return to when the program expires in March 2021.
• Superannuation reforms – increased regulation for super sector with a greater focus on transparency, fees and underperforming funds. Expect ongoing industry consolidation.
• Mega-caps– Businesses with annual turnover >$5b will miss out on support measures.

Should you have any queries with the recent budget announcements and the implications to you please do not hesitate to contact the team.