
Last updated: Mar 3, 2024
The challenge set for the Treasurer in this Budget was to deliver a plan to jumpstart the economy out of hibernation, by encouraging jobs, investment and household spending.
This Budget certainly featured many announcements aimed at encouraging hiring, investment and spending. The Government’s task now is to encourage businesses and households to take advantage of the new programs to deliver stronger economic growth and more jobs.
The three pillars of the Budget, that will underpin jobs, investment and household spending are:
The centerpiece of the Budget were the personal income tax cuts, including the continuation of the Low and Medium Income Tax Offset, which will flow to more than 11 million taxpayers. The changes are worth an estimated $1,080/year for people earning between $45,000 and $90,000. The benefits increase from there up to a maximum of $2,430/year for people earning more than $120,000. In addition, sole traders will also benefit from the unincorporated tax discount of $1000. Backdating these tax cuts to start on 1 July 2020 is a particularly positive decision and means the extra money will be in bank accounts as soon as the legislation is passed and payroll software is updated.
From an economy-wide perspective, these tax cuts will immediately put extra money in people’s pockets to spend in businesses, including small businesses.
For those people who receive a range of government payments, including aged pension, carer payment and family tax benefit, they will receive two $250 cash payments paid in December and March 2021.
The overall impact of these changes on disposable incomes will depend on what households do with the tax cuts and extra government payments. The extent to which they are saved or used to repay debt will diminish the impact on the economy. In short, the tax cuts need to be spent if they are to help create jobs and boost growth.
Turning now to business-related policies, there were a number of announcements.
These digital-enablement programs, which will help business owners run their operations more efficiently, will play a critical role in facilitating the take-up of the other new jobs and investment programs.
As with the tax cuts, the key to the success of these business-based programs is that they are used. Businesses will need to have the confidence to take on new staff and buy new equipment if the economy is to feel the full benefit of these programs.
The Budget isn’t leaving all the responsibility of economic recovery to businesses and households, there was also an additional $7.5 billion spending for new national-level infrastructure projects. This funding is in addition to the $100 billion infrastructure fund (over ten years) announced in previous Budgets. In addition, $3.5 billion has been allocated for upgrades to the NBN roll-out to deliver more Fibre to the Premises connections.
Small businesses are also likely to benefit from the additional $1 billion for the Local Roads and Community Infrastructure program. This is for smaller, local projects to help councils to deliver immediate upgrades of local roads, footpaths and street lighting.
For small businesses to benefit from infrastructure projects, three things need to happen. Firstly, small businesses need to be sub-contractors for these projects. Secondly, the government must enforce the requirement that its payment terms are also reflected through to subcontractors. Finally, the government must mandate the use of e-invoicing to simplify and speed up payments through supply chains.
The success of this Budget in rebooting the economy largely depends on the public response. Households will need to be confident enough to spend the tax cuts and businesses will need to be willing to invest in their future and hire new staff. If the tax cuts sit in bank accounts, business hiring and investment programs go unused and infrastructure projects are delayed then the economic recovery is less likely to eventuate.
As a result, the Federal Government will need to remain vigilant, and be prepared to make future policy adjustments, if businesses and households do not respond to this plan for recovery.
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