Spending splurge to create 250,000 jobs in two years, more money for aged care and mental health

The government has announced a spending splurge worth $74.6 billion aimed at creating more than 250,000 jobs over the next two years using income tax cuts, business tax breaks and a mammoth outlay on social services, ranging from aged care to mental health.

Treasurer Josh Frydenberg put the jobs goal at the heart of a federal budget that seeks to turbocharge the economy and secure a pandemic recovery in the hope of fuelling enough growth to carry a debt burden that will reach $1.2 trillion in 2025 and see the country’s finances remain in deficit for at least a decade.

The budget pours money into social services ranging from aged care to mental health in an attempt to clear the ground for a federal election within a year and blunt attacks on the Coalition for neglecting essential services. In the first major funding response to a political firestorm over the treatment of women, the budget also offers $3.4 billion for women’s economic security including help to balance work and family.

But the budget offers a cautious outlook for the fight against the coronavirus, assuming international borders will remain closed until the middle of next year, after the government achieves a “population-wide” vaccine rollout by the end of this year.

The aged care package, one of the biggest items in the budget with a five-year cost of $17.7 billion, offers more home care places as well as more support for residential aged care, but does not embrace all the recommendations of the royal commission into aged care released in March.

Mr Frydenberg’s third budget extends a key tax break for small business, allowing them to assume Australia’s international borders will remain closed until the middle of next year and offers a cautious outlook that projects lasting deficits and almost $1.2 trillion in gross debt in 2025 despite the economic rebound.

The Treasurer said the “pandemic budget” needed to inject more growth into the economy, promising a stimulus from an extension of last year’s low- and middle-income tax offset for about 10 million workers.

“The real beneficiaries of the tax cuts in tonight’s budget are the low- and middle-income earners,” he said. “They’re the tradie and the truckie and the teacher and the nurse who earn between $48,000 and $98,000 – and they will be $1080 better off.”

Those workers would have experienced a net increase in tax if the government had not extended the offset. While the government chose not to bring forward a bigger tax overhaul, the Treasurer said deeper tax cuts for workers on middle and high incomes would go ahead as planned in 2024 because they were affordable and necessary.

The $74.6 billion in new spending and tax breaks over five years also includes a year-long extension of easier rules for businesses, with up to $5 billion in annual turnover to deduct the full cost of assets they buy, as long as they do so by June 2023. On top of this tax break, costing $17.9 billion over five years, the government will extend a scheme to allow small businesses to “carry back” old losses and cut their tax bills, sacrificing $3.2 billion in federal revenue.

The mammoth outlays also include $2.7 billion for new training schemes, $2 billion for mental health and a further $13.2 billion for the National Disability Insurance Scheme, another area where Labor has accused the government of trying to cut services to the vulnerable.

The goal to create 250,000 new jobs is part of a budget ambition to drive unemployment down to rates that could fuel wages growth, answering a Labor attack on the government for failing to do enough to lift family incomes.

“This budget will help to create more than 250,000 more jobs by the end of 2022-23,” Mr Frydenberg said in his budget speech.

Speaking to the media in the budget lockup, however, he emphasised this was a forecast rather than a personal pledge.

“I’m confident this budget will create jobs and that this budget will secure Australia’s economic recovery.”

Asked if he was confident he could create 250,000 jobs in the next two years, Mr Frydenberg said: “I’m confident we can implement the measures in this budget and drive more jobs, consistent with what has been forecast.”

Labor treasury spokesman Jim Chalmers dismissed the plan on Tuesday night, saying the government would send real wages “backwards” over the years ahead.

“Beyond the hype and the headlines, Australians on modest incomes will only receive a temporary tax break before the election and be dealt a tax hike after it, while the highest income earners will enjoy a permanent tax cut forever.”

ACTU president Michele O’Neil said the budget failed to put spending toward fixing low wages and insecure jobs, attacking the way the new policies could help private sector operators in aged care, mental health and training.

“This budget has done nothing to create more secure, reliable employment or increase wages,” she said.

But Business Council chief executive Jennifer Westacott praised the budget for delivering a “social dividend” from the growing economy, given the funding injection for essential services.

“Business agrees the best way to repair the budget and start paying down debt is to grow the economy,” she said. “The economy needs to be growing at a rate that provides the light at the end of the tunnel to pay off the nation’s trillion-dollar mortgage and pay it off in a way that continues to feed ongoing growth.”

While the government has not set a date to open borders, its economic plan is founded on a key assumption migrants will come into the country from the middle of next year.

Finance Minister Simon Birmingham described the key assumptions as conservative across factors such as the iron ore price – assumed to be $US55 per tonne, far below market prices.

The budget forecasts real growth in gross domestic product will rise from 1.25 per cent this calendar year to 4.25 per cent next year and then moderate to 2.5 per cent in fiscal 2024. The unemployment rate is forecast to fall from 5.6 per cent today to 4.75 per cent in fiscal 2023 and 4.5 per cent in 2024 and 2025.

Behind the budget plan is a cabinet decision to pour money back into the economy from the gains in Commonwealth revenue during the recovery, which has added $121.8 billion to the budget bottom line compared to forecasts in the previous budget in October.

The budget reconciliation table shows $34.1 billion of that gain has been added to the budget bottom line over four years, but $87.7 billion has been spent in policy decisions announced on budget night.

Treasury officials described this as a strategy to utilise the gains from the recovery to offer more support to the economy. The result is a smaller budget deficit this financial year, $161 billion compared to the $213.7 billion forecast only seven months ago, but no date on a return to surplus.

While debt levels are tipped to be lower over time than thought last October, net debt will climb to 40.9 per cent of the economy in 2025, compared to 18.2 per cent during the recession of the 1990s and 3.7 per cent during the global financial crisis.

Total borrowings, or gross debt, will reach $1.2 trillion and require annual interest payments of $20.8 billion, roughly the same as family assistance payments.

With interest rates at historic lows, Mr Frydenberg acknowledged the risk of rising interest rates over time but said Australia could grow faster than the debt.

“That is based on the assumptions of Treasury that for the next decade we will see growth in the economy outpace the growth in the debt,” he said.

While the government has not set a date to open Australia’s international borders, its economic plan is founded on a key assumption that migrants will come into the country from the middle of next year.

“Inbound and outbound international travel is expected to remain low through to mid-2022, after which a gradual recovery in international tourism is assumed to occur.”

Mr Frydenberg conceded the “imprecise” task of predicting the opening of the borders was based on the key budget assumption of a population-wide vaccine rollout by the end of this year.

Mr Birmingham said the border timetable was an assumption, not a government decision, and that the government wanted to open Australia when health advice allowed.

“International borders we wish to see reopen as early as possible but no sooner than it is safe to do so, and the key assumption in the budget is that Australia continues to successfully suppress the spread of COVID-19,” he said.

While the border closures have stalled Australia’s usual growth, with population rising slightly to 25.8 million in 2022 as citizens return home, the budget sets out a big intake of migrants when travel resumes.

Net overseas migration is forecast to reach 95,900 in fiscal 2023 and return to its past level of about 235,000 four years from now.

Last October’s budget forecast overall government receipts to fall to $463.8 billion this financial year, but this budget shows it climbing to $499.8 billion instead.

On the spending side, the last budget forecast total payments of $677.4 billion this financial year but the new document forecasts $660.8 billion.

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