Spending in right areas as Budget negotiates balancing act

As the economy rebounds from the setbacks of 2020, the government has had to navigate a path with an eye to both immediate needs and the longer term. The Budget includes some much-needed spending in important areas, but there is a sense of keeping some powder dry in case of future adverse shocks. Australia remains exposed to both local and global challenges in managing the consequences of the pandemic.

Budget 2021 includes action on some high-profile social issues, together with measures targeting employment growth and productivity. Against a backdrop of improving government finances, it introduces no significant revenue-raising proposals.

The forecast of an underlying cash deficit of $161 billion for 2020-21 shows a significant improvement in the bottom line when compared to fiscal data Treasury released as recently as December 2020. Nonetheless, federal government net debt is forecast to grow to $980.6 billion by 2024-25 despite spending announcements which are modest relative to those of 12 months ago.

Extending to 30 June 2023 the full expensing of the cost of eligible business assets, and the company loss carry back will enhance the cash flow of many businesses that have suffered during the pandemic. Specific sectors benefitting from tax changes and other government support include software development and projects (such as clean hydrogen) that are part of the government’s program to reduce carbon emissions. These measures can contribute to the generation of high-value jobs for the future.

Before the pandemic caused a radical shift in short-term priorities, it was already apparent the structure of our society’s care for the aged, mental health support and the affordability of childcare were issues that demanded attention from the government. We therefore welcome the additional investment in these sectors. The aged care investment should generally favour women, as does the increase to the Child Care Subsidy for many families who are currently experiencing childcare costs as a barrier to taking on additional work. Further, the proposals to enhance our aged care infrastructure and to make childcare more affordable should support employment growth across many sectors.

The federal government’s additional support for the software development industry is also welcome.

Spending on transport and other physical infrastructure continues as a significant component of new spending, to the tune of more than $15 billion over 10 years, distributed across all states and territories.

The retention of the low and middle-income tax offset for a further 12 months – following the tax rate threshold increases implemented in the 2020 Budget – is a double benefit for many taxpayers. It is a relatively expensive step ($7.8 billion) but it appears that the government had little option but to incur this extra cost, from a political perspective.


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