Budget 2020: Treasurer Josh Frydenberg’s $507bn in tax cuts, cash payments and wage subsidies

Josh Frydenberg throws a staggering $507bn in tax cuts, cash payments and wage subsidies to drive business investment.

Treasurer Josh Frydenberg speaks at Parliament House last night. Picture: NCA NewsWire / Martin Ollman

Josh Frydenberg has thrown a staggering $507bn in tax cuts, cash payments and wage subsidies to drive business investment and protect the health of Australians in a bid to restore the economy to pre-COVID growth levels by the end of next year and create almost a million jobs by 2024.

Delivering a budget promising a shorter road to economic recovery, the Treasurer unveiled a $74bn jobs and tax stimulus plan, including tax cuts of up to $2745 for 11 million Australians, $200-a-week wage subsidies for young workers and almost $35bn in business tax breaks.

Mr Frydenberg said the government’s “economic recovery plan” would “rebuild the Australian economy and secure Australia’s future”.

“It’s all about helping those who are out of work get into work, and those who are in a job stay in a job,” he said. “This budget will create an opportunity. This budget will deliver investment. This budget will grow the economy and guarantee the essential services that Australians rely on.”

The government will move ¬immediately to pass its personal income and corporate tax plan in a $74bn JobMaker omnibus bill to be put to parliament on Wednesday, claiming it would underpin the creation of 950,000 jobs over the next four years.

But Mr Frydenberg warned the unprecedented spending would have to come to an end after driving the country towards a net debt of $1 trillion — with gross debt forecast to hit as high as $1.7 trillion by the middle of the decade — and driving last year’s balanced budget to a $213bn deficit this year.

“This is a heavy burden, but a necessary one to responsibly deal with the greatest challenge of our time,” he said.

After the steepest economic decline since World War II, growth is now forecast to bounce back sharply from a 7 per cent decline in July to 4.25 per cent growth through 2021, with output returning to pre-pandemic levels.

Unemployment was also expected to peak at 8 per cent in December, well below the Treasury warnings of 10 per cent, before falling to 6.5 per cent by 2022 and 5.5 per cent two years later.

But the salvage plan to lift the nation out of the “COVID recession” was based on a vaccine being available for most Australians by the end of next year, state borders except Western Australia being open by Christmas and Victoria lifting its stage-four restrictions as planned.

Business, industry groups and universities roundly endorsed the package, while Labor attacked the budget for not committing to a permanent increase in JobSeeker payments.

Treasury confirmed the new measures in the budget totalling $98bn had brought the total stimulus and economic rescue since the start of the pandemic to $507bn. The new measures include $17.8bn in tax cuts for workers, with low- and middle-income earners getting tax relief of up to $2745 for individuals and up to $5490 for dual-income families in 2020–21.

The tax cuts would be coupled with two separate cash payments to pensioners, veterans and concession-card holders of $250 — one in November and the next in March next year and worth $2.6bn — to start driving aggregate demand and pump cash through the economy.

A new $4bn wage subsidy, to be called the JobMaker Hiring Credit, will give employers access to payments for each job they create for a worker aged between 16 and 35 over the next 12 months.

The subsidy, designed to transition people from JobKeeper and JobSeeker, would be paid at the rate of $200 a week for those aged under 30 and $100 a week for those aged between 30 and 35, but based on at least 20 hours’ work a week.

In a “kickstart” to the economy, business will be given $27bn in new tax write-offs to spark investment, with the expansion of the Instant Asset Write Off to allow the full write-off of eligible purchased assets. Small, medium and big businesses with a turnover of up to $5bn would be eligible — about 3.5 million businesses.

Mr Frydenberg said it was “the largest set of investment incentives any Australian government has ever provided”. “It is a game changer. It will unlock investment. It will dramatically expand the productive capacity of the nation and create tens of thousands of jobs,” he said. A further $4.8bn in extra tax breaks would be given to about one million companies through a temporary loss carry-back that would allow losses incurred up to June 2022 to be offset against pre-pandemic profits in 2018-19.

A further $2bn would be spent on expanded tax incentives for research and development.

The budget also delivered the second Women’s Economic Security Statement, pledging $240m for cadetships and apprenticeships for women in science, technology, engineering and mathematics.

Universities received a one-off $1bn research boost under the Morrison government’s innovation push.

As part of a major regional economy plan, $2bn in concessional loans would be offered to drought-devastated farmers, $350m for regional tourism and $317m to help exporters access global supply chains.

A further $3.9bn will be directed to the National Disability Insurance Scheme as part of $25bn in direct COVID-related spending, including health and vaccine funding.

The budget also confirmed previously announced COVID-19 support packages, including the $1bn JobTrainer fund, $1.2bn in wage subsidies to support 100,000 apprentices and trainees, and the government’s $1.5bn manufacturing plan.

Mr Frydenberg said that the global economic environment “remains uncertain, with the ¬impact of this crisis to be felt for many years to come”.

“Our economic and fiscal strategy sets out the path to grow the economy, stabilise debt, and then reduce it over time,” he said. “First, it focuses on boosting consumer and business confidence, growing the economy and creating jobs.

“Once the recovery has taken hold and the unemployment rate is on a clear path back to pre-crisis levels, comfortably below 6 per cent, we will move to the second phase where there is a deliberate shift from providing temporary and targeted support to stabilising gross and net debt as a share of the economy. We will then rebuild our fiscal buffers, so that we can be prepared for the next economic shock.”

Finance Minister Mathias Cormann said the government had taken on record levels of debt because “we care about the future opportunities for young people across Australia”.

“The message is: there was no alternative. If we had not done what we did, the level of disruption would have seriously undermined the opportunity for years and years to come,” Senator Cormann said.

“By doing what we’re doing in this budget, we are maximising the opportunity for every young Australian today and into the future to get ahead. That is why we have taken this level of debt on with our eyes wide open.

“With interest rates where they are, it is actually more affordable than it has been for a long time.”

Mr Frydenberg described the debt levels as “manageable because we’re living in a period of historically low interest rates, with a cash rate of 25 basis points”.

The Treasurer said while more than 90 per cent of the government’s spending was contained in the first two years there had been a significant hit on revenue, which was down by $283bn.

“Payments are up $237bn. Our budget bottom line has been hit by the broader impact on the economy and what it’s done to company profits, what’s it’s done to employment,” he said.

Delivering his second budget, which prior to the pandemic had been on track to record the ¬nation’s first surplus in more than a decade, the Treasurer conceded that the assumptions were based on the easing of COVID-19 restrictions and state borders reopening.

Opposition Treasury spokesman Jim Chalmers said the “budget will rack up a trillion dollars of debt but still doesn’t do enough to create jobs”.

Business Council of Australia chief executive Jennifer Westacott said “this is the right budget at the right time”.