06 Oct 2020
The post-COVID economy will have different moving parts to pre-COVID. The 2020-21 Australian Federal Budget looks to replace public spending – which has been supporting the economy - with private, using what it hopes are effective fiscal multipliers.
Here are some key charts showing the impact ANZ Research expects the Federal Budget will have in the short to medium term.
"The $A100 billion JobKeeper package and $A18 billion coronavirus supplement to the JobSeeker will soon end.
Personal income tax cuts have been brought forward. From 2020-21 the upper limit of the 19 per cent rate threshold will increase from $A37,000 to $A45,000 and the 32.5 per cent marginal tax rate upper threshold will increase from $A90,000 to $A120,000. The low and middle income tax offset (LMITO) - of up to $A1080 per annum - stays in place for another year.
The $A100 billion JobKeeper package and $A18 billion coronavirus supplement to the JobSeeker will soon end.
Additional household support and tax cuts are small in comparison.
Just focusing on five major measures suggests direct stimulus will fall by nearly 8 per cent of gross domestic product (GDP) in the December quarter.
Shovel ready infrastructure projects have been prioritised and the National Broadband Network is getting a $A4.5 billion boost.
Nominal GDP, the key macro variable for the budget, is expected to fall 1.75 per cent in 2020-21, although this is much less than the 4.75 per cent drop forecast in the July economic update.
A solid recovery is expected in 2021-22.
Population growth has been revised down. The Government now expects growth of just 0.2 per cent in 2020-21 (which would be the lowest since World War II) and only 0.4 per cent in 2021-22.
This will have clear implications for GDP growth and housing demand.
Given employment in August was already 294,000 higher than the June quarter average, this means there would be a net rise of just 44,000 over the remainder of the fiscal year.
This suggests the Government expects to see net employment losses over the coming months.
A further 221,000 workers are expected to gain employment by June 2022 but employment won’t exceed the pre-pandemic peak of 13 million until 2023-24.
The current and previous downturns show young people are more vulnerable to labour market shocks and the scarring effects of recessions.
The $A4 billion JobMaker Hiring Credit and $A1.2 billion wage subsidy for new apprentices and trainees are intended to incentivise businesses to hire new employees aged 16-35 years old.
Cherelle Murphy is Senior Economist at ANZ
The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.
06 Oct 2020
06 Oct 2020