How to Take Advantage of the Government's Generous Budget – TWT Finance Editor Jason C. Khoury
Last week our federal treasurer, Josh Frydenberg, announced an annual budgeted deficit of over $200 billion, which pre-COVID was meant to be a surplus of $6 billion.
But a few bucks off the mark in the middle of a pandemic?
After such a rollercoaster 2020, perhaps it’s not time to contemplate how much our lives have been turned upside down and how much our plans had to change, but be fluid in our financial thinking and keep our eyes firmly rested on the future.
The economy is about to receive a massive fiscal boost and it’s time for all of us, as businesses and individuals, to cash in on rare government generosity. Some will no doubt end up with more of the spoils than others.
While there is good news for new homebuyers (more on this later), this amounts to very a different recovery attempt to the GFC, as when Australia tried to fend off the worst effects of plunging financial markets, the economy received monetary stimulus when the cash rate was reduced by 400 points. But today, the cash rate is all of nothing and what we need is a cash splash and that’s what we’re gonna get; well, in the Liberal ‘trickle down economics’ kind of way.
Over the next four years, another $50 billion will float around the economy as a result of tax cuts for individuals and business. 11 million of us will cash in right away, with tax cuts planned down the track are being brought forward. The Low and Middle Income Tax Offset, which eligible workers can claim when they lodge their tax return in 8 months’ time, has also been extended. Accountants, get ready for the rush!
For businesses, it’s what’s done with government incentives and tax breaks that’s going to make all the difference. As unnatural as it might seem after the year we’ve been through, businesses need to embrace a growth mindset, think big and start investing and employing. Projected budget deficits and the government’s generous mood winds back progressively, so it’s in the next 12 months that businesses need to take real advantage and expand.
Businesses can get a share of $4 billion in wage subsidies, designed to re-employ a displaced workforce of 450,000. Over $1 billion is being allocated to subsidise the wages of 100,000 new apprentices, up to $7,000 a quarter, but only till September next year.
The JobMaker Hiring Scheme will give businesses $200 a week for the next year for employing someone on welfare, but only if they’re aged between 16 and 29. The rate drops to $100 for employing someone between 30 and 35. It’s conditional on employers proving their total number of employees rose, and that the new employee works an average of over 20 hours a week.
Businesses might choose to employ 2 part-timers doing 20 hours a week each, rather than employing one person full-time, in order to receive the $200 weekly payment twice. This would improve employment numbers but leaving the offering of full-time work for another day. I guess spreading the opportunity a little, for now, isn’t so bad, but we don’t want to get in bad habits, either.
Our Prime Minister Scott Morrison explained that the preferential treatment for young people is because these are the critical years, where if they don’t get into the right habits, long-term unemployment can result. That’s understood, but leaves older unemployed people right now scratching their heads, knowing it will be even harder for them to get back on the horse.
There are more breaks from the tax office. Rather than claiming depreciation of machinery and the like over many years, the cost of business investments can be claimed as a tax deduction immediately. And that’s not just for small business, but any company with a turnover of up to $5 billion. All at a policy cost of a whopping $27 billion.
Businesses can even claim a tax refund on some previous annual losses, which previously could only be offset against future profits. This announcement cost $5 billion by itself.
All this to help businesses spread their wings a little, well, a lot.
For those with mortgages, the news is good anyway. Cash rates are at record lows and interest rates on loans competitive. (If you don’t have a deal in your favour now with a low rate and smart structure, now is a good a time to refinance as any). But the budget came with a serve of good news for those trying to get into what can be an unreachable local market.
An extra 10,000 places have been provided for first home buyers in the government guarantor scheme. This gives new homeowners the ability to get into the property market with a 5% deposit, with the Government guaranteeing the other 15%. (It’s something I have lobbied for, and I’m very satisfied with this initiative, as in my work as mortgage broker, it’s always seemed a bit unfair that only kids whose parents owned a property found it easy to get a guarantor).
The government’s showing something of a heart. Medicare-subsidised psychology sessions have been doubled for those needing them, at a cost of $101 million. More funding for home care packages have been rolled out to keep the elderly out of home care, but still not enough. $1 billion in bonds will encourage much-needed investment into affordable housing. An additional $800 million lands with the NDIS.
Direct funding measures also include $1.3 billion to the manufacturing sector and $3 billion to ‘shovel ready’ infrastructure projects.
But as with any recovery plan, though, cracks are bound to appear. With the generous handouts of Jobseeker being wound back and Jobkeeper to follow, it’s inevitable that some people will feel the pain of an economy going through the gears more than others.
While government’s encourage the notion that ‘we’re all in this together’, in a financial sense I prefer the analogy that ‘whilst we’re all in the same storm, we’re not all in the same boat’.
Everyone’s going through their own individual COVID experience. For some, it’s been tragic loss and for even more others, severe financial loss. Some business owners have struggled to keep their doors open, and lockdowns combined with an uncertain future have driven some of us around the bend.
Right now though, it’s all eyes front. Businesses can’t sit on their hands to wait and see when a COVID vaccine is rolled out, but rather see the light and embrace the tax breaks and wage subsidies on offer during the next year.
By the time we’re formally out of the woods, we’ll be a nation mobilised to regain the awesome economy we were perhaps taking for granted until last March.
As for our increasing foreign debt? It was nobody’s fault. We acknowledge what could have been done better, and we’re now doing what we need to rebuild our economy, so let’s not look back. While we’ll see our national debt approach $1 trillion in a few years, be comforted that the interest we’ll need to pay on this debt will be locked in at around 1%, meaning the cost of servicing Australia’s credit card won’t be much different than before.
The banks are being encouraged to loosen lending restrictions and even after 20 years in the game, I don’t know exactly what that will look like, but it’s what I like to call directionally correct.
Keep positive. We’re on the move.