Budget 2020-21 Analysis
As the consequences of the COVID-19 pandemic continue to hit hard, Australia is experiencing a significant downturn in economic activity with high levels of unemployment, underemployment and a strong decline in GDP. Household spending and fixed investment have fallen amid business shutdowns and job losses.
The Budget acknowledges that insufficient stimulus would result in a prolonged recession and that running a deficit comes second to economic recovery. The Budget predicts Australia’s deficit will reach $213.7 billion this year, falling to $66.9 billion by 2023-24, with net debt increasing to $703 billion, peaking at $966 billion in June 2024.
Unemployment is expected to rise, reaching 8% in the December quarter 2020 before falling to 6.5% in 2021-22. After declining by 3.75% this year, the rate of economic growth is expected to increase to 4.25% in 2021. Despite projected growth of 10% in the economy over the forward estimates, no real wage growth is forecast.
In our Pre-Budget submission,
we called for a strong framework for long-term investment and strategically-directed stimulus measures in areas of national priority, where the investment would have the greatest impact on job creation and job protection.
The professional workforce - including STEM professionals - will play a crucial role in meeting the challenges of this pandemic and will be central to economic recovery, so we were looking for strong investment in the STEM workforce, science and R&D as part of the reconstruction efforts.
We called for investment in construction and infrastructure projects, as critical drivers of productivity and job creation – investment in civil infrastructure including road and rail projects, support for partnerships between the private and public sectors to rebuild after bushfires and floods, support for an advanced manufacturing industry and investment in residential and commercial construction.
Strategic investment in emerging knowledge-based industries like biotechnology, communications technologies and advanced manufacturing is also critical, as well as providing competitive advantages to established industries like agriculture, resources, and health care.
The 2020-21 Budget provides substantial tax cuts including $17.8 billion to bring forward planned personal income tax cuts and $31.6 billion in tax relief for business.
Significant investment of $14 billion has been provided for new and accelerated infrastructure projects. However the $1.5 billion provided for manufacturing is modest, considering this sector has an annual output of around $100 billion.
New investment in STEM and research in universities is welcome, but the scale was less than expected given the impacts and challenges of the COVID-19 pandemic in these areas.
While the budget includes some measures to encourage the employment of young people, a comprehensive, long-term youth employment strategy is required.
The response to childcare was disappointing given the vital role of childcare in supporting greater workforce participation, particularly by women. The scale of the response to aged care, which requires significant reform, and the lack of investment in social housing construction were also of concern.
Although the budget involves big spending, the level and mix of funding priorities remains contentious in terms of whether they will adequately shield the economy from job cuts, generate new jobs and protect the most vulnerable members of our community from the impact of the pandemic.
The budget papers are available here.