So, what's the Government's plan?
1. Create jobs
It has been clear for weeks that the focus of this year’s Federal Budget would be on creating jobs, driving the unemployment rate back to 6 per cent and lower. However, it’s no longer about supporting just any job but rather jobs that have a future. As such, there was no extension to the JobKeeper subsidy beyond March 2021, which will disappoint many. The hard-economic reality is that there has to be a pivot toward creating jobs that have a future and weaning the economy off expensive life support, although speed and timing are a tricky balance.
The focus on jobs was clear in that major policy initiatives included a modelled estimate of the jobs impact. Much of the job creation – which on the Government’s estimates sees the unemployment rate peaks at 8 per cent in the December quarter 2020 before falling to 5.5 per cent by June quarter 2024 – relies on a recovery in aggregate demand.
In terms of direct measures, the centre-piece focuses on creating jobs for young Australians. The JobMaker Hiring Credit provides businesses who hire from the pool of those receiving JobSeeker, the Youth Allowance or Parenting payment, $200 a week for those aged 16 to 29 and $100 a week for those aged 30-35. To qualify, employers must prove net additional employment – which is important with policies such as wage subsidies.
Alongside these policies there were several initiatives aimed at education and training and apprenticeships which will be important in plugging the skills gap, but arguably take time to feed through. These policies should be read in the context of proposed changes to the University sector, and easing of tax-deductibility of reskilling.
Disappointingly, while there was a clear focus on getting young Australians back into jobs, direct measures for females who have lost their job or left the workforce were absent. Moreover, the refreshed Women’s Economic Security Statement 2020 provides a disappointing $240.4 million in funding over five years.
2. Get households spending
Consumers are being asked to drive part of the economic recovery. A centre piece of this Budget has been tax cuts for individuals, which the government hopes will spur spending and put the economy on the path to recovery.
As expected, Stage 2 of the personal income tax cuts have been brought forward to FY21. Alongside this, the Low and Middle Income Tax offset (LIMTO) has been extended for one year. The Government knows that this kind of income boost for that demographic is more likely to be spent. It equates to a boost of $1,060 for those earning $40,000 in FY21 compared with $2,565 for those earning $200,000.
In total it will boost household income by $6.9 billion in FY21 and a further $16.8 billion in FY22 that the Government is hoping, though cant be certain, will be spent. Treasury estimates these tax measures will boost GDP by $2.5 billion and $9 billion in FY21 and FY22 respectively.
That assumes for every dollar given away in FY21, GDP will increase by 36 cents, and in FY22 the one-off LITMO will boost spending by 70 cents for every dollar. These assumptions seem reasonable, but it does also show how much goes into savings, rather than spending.
One way that spending is triggered, is direct cash payments, so it makes sense the Government has added two more $250 payments to eligible pensioners, veterans, low income families and concession card holders. While smaller amounts than previously, we know this works given the previous two $750 payments quickly flowed through to the economy.
However, the numbers show that in the June quarter, one in every five dollars of disposable income was saved. Given Australians are facing rising unemployment, elevated job insecurity, the ending of support including JobKeeper and JobSeeker, rent and mortgage holidays ending and weak wages growth, there is a question mark over Government assumptions that predict consumers will spend more, rather than less, with a prediction the savings rate will decline from its record highs.