The Treasurer, Josh Frydenberg has released an Economic and Fiscal Update July 2020, forecasting an underlying cash Budget deficit of $85.8bn for 2019-20, rising to $184.5bn for 2020-21 (or 9.7% of GDP).
Gross debt is expected to increase to $851.9bn (45% of GDP) at 30 June 2021, while net debt will be $677.1bn (35.7% of GDP). Once the economic recovery is established, the Treasurer expects stronger growth and an improvement in the fiscal position to help stabilise government debt as a share of GDP.
Tax receipts have been revised down by $95.6bn, being $31.7bn in 2019-20 and $63.9bn in 2020-21 due to the severe contraction in economic activity from the COVID-19 pandemic.
The Treasurer said the outlook for tax receipts remains uncertain reflecting uncertainty around the economic outlook and how it interacts with structural and administrative features of the tax system, such as the ability of taxpayers to carry forward losses to offset future income.
Total tax receipts, including GST and indirect taxes, are estimated to fall from $432bn in 2019-20 to $416bn for 2020-21.
The Economic and Fiscal Update, released on 23 July, outlines the key COVID-19 policy response measures announced by the Government since March 2020. The Treasurer said the Government has provided economic support for workers, households and businesses of around $289bn (14.6% of GDP) in response to COVID-19. The unemployment rate is forecast to hit 8.75% in 2020-21.
JobKeeper extension
The economic update incorporates the extension of JobKeeper payments for 6 months beyond its legislated finish date of 27 September 2020, as announced by the Government on 21 July 2020. The total cost of the JobKeeper regime, as extended, is now estimated to be $85.7bn over 2019-20 and 2020-21.
As announced on 21 July, the current JobKeeper payment of $1,500 per fortnight will be reduced to $1,200 per fortnight from 28 September (or $750 for employees working less than 20 hours per fortnight). From 4 January to 28 March 2021, the rate is $1,000 (or $650 for less than 20 hours per fortnight). Businesses will also be required to demonstrate an actual decline in turnover from 28 September under the existing turnover test for each of the 2 periods of extension.
New measures announced
While the Economic and Fiscal Update did not announce any major new financial support measures, it has announced the following changes that do not appear to have been previously announced:
- Early super release of $10,000 extended to 31 December 2020 – the Government will extend the application period from 24 September 2020 to 31 December 2020 for the early release of their superannuation (tax-free) for those dealing with adverse economic effects of COVID-19. Eligible Australian and New Zealand citizens and permanent residents were able to access up to $10,000 of their superannuation before 1 July 2020. A second application can be made via the myGov website to access a further $10,000 until 31 December 2020 (extended from 24 September).
- Eligible rollover fund (ERF) transfers to ATO – the Government will amend the measures in the Treasury Laws Amendment (Reuniting More Superannuation) Bill 2020 proposing to require all ERFs to exit the super industry. The start date of the proposal to prevent super funds transferring new amounts to ERFs will be deferred by 12 months – it had originally been proposed to apply from 7 days after Royal Assent to the Bill. The requirement for ERFs to transfer to the ATO all ERF accounts less than $6,000 will be deferred to 30 June 2021 (instead of 30 June 2020). All remaining ERF accounts will need to be transferred to the ATO by 31 January 2022 (instead of 30 June 2021).
- Wage subsidy for apprentices and trainees extended – the Supporting Apprentices and Trainees (SAT) wage subsidy will be extended for a further 6 months to 31 March 2021, and expanded to include medium-sized businesses (of less than 200 employees) from 1 July 2020 to 31 March 2021. The apprentices or trainees must have been in-training with the business as at 1 July 2020. The SAT wage subsidy provides eligible employers with 50% of the apprentice or trainee’s wages for 9 months, up to $7,000 per quarter to support the continuity of training. The original wage subsidy scheme enabled eligible employers to apply for the wage subsidy for 9 months until 30 September 2020.
- Personal income tax exemption for Operation Orenda – a full income tax exemption will be provided for the pay and allowances of Australian Defence Force (ADF) personnel deployed on Operation Orenda as part of the United Nations Multidimensional Integrated Stabilisation Mission in Mali. Date of effect: 1 April 2020.
- Unclaimed superannuation transfers to KiwiSaver – the start date for the 2015-16 Budget measure to allow the ATO to pay lost and unclaimed superannuation amounts directly to New Zealand KiwiSaver accounts, has been revised from 1 July 2016 to 6 months after the date of Royal Assent of the enabling legislation (yet to be introduced).
Federal Budget in October
The Economic and Fiscal Statement on 23 July was never meant to be a “mini budget”. The Federal Budget will be handed down on 6 October 2020. Mr Frydenberg has previously indicated that the Government is looking at the timing of the legislated personal income tax cuts and may consider bringing them forward as part of the Budget in October.
Under the existing personal income tax cuts, legislated to apply from 1 July 2022, the $37,000 income threshold for the 19% rate will increase to $45,000, and the $90,000 threshold for the 32.5% rate will increase to $120,000. From 2024-25, the rate that applies to taxable income between $45,000 and $200,000 will be 30% and the top marginal tax rate of 45% will apply to taxable income in excess of $200,000. That is, the 37% bracket will be abolished.
