What does the 2020 Federal Budget mean for businesses?

The 2020 Federal Budget has outlined a sweeping program of initiatives that will help support economic growth through the COVID-19 period and long into the future.

This comes at a cost to the economy, however, with the Budget papers revealing the deficit will rise to $213.7 billion this year¹, dropping to $66.9 billion by the 2023/24 financial year. Additionally, net debt will grow to $703 billion or 36 per cent of GDP this year and peak at $966 billion or 44 per cent of GDP in June 2024.

In his Budget speech, Federal Treasurer Josh Frydenberg noted economic growth is expected to drop by 3.75 per cent in 2020, before a turnaround in 2021 when the economy is forecast to grow by 4.25 per cent. Unemployment is expected to reach 8 per cent in the December quarter, before falling to 6.5 per cent by the June quarter 2022.

Against this backdrop, the Coalition has announced a host of strategies to put the economy back on the path to growth. The plan focuses on jobs creation and boosting consumer and business confidence. Once this phase of the economic recovery is complete, the Federal Government says it will embark on measures to reduce the deficit and national debt.

Unparalleled tax incentives

An array of never-seen-before tax incentives are at the core of the Government’s plan to support the economic recovery. These include:

• The ability for businesses with an annual turnover of up to $5 billion to fully write off the cost of any eligible asset until June 2022. This incentive will be available to 99 per cent of all Australian businesses, and encourages investment in new plant and equipment, to help lift productivity and, in turn, economic growth.
  
  
• The ability to offset losses incurred until June 2022 against profits made in or after the 2018/19 financial year, which Treasury estimates will create 50,000 jobs.

In his Budget speech, the Treasurer said these provisions were game changing.

“It will unlock investment. It will dramatically expand the productive capacity of the nation and create tens of thousands of jobs. A trucking company will be able to upgrade its fleet, a farmer will be able to purchase a new harvester and a food manufacturing business will be able to expand its production line."

“This will boost the order books of the nation. Small businesses will buy, sell, deliver, install, and service these purchases. Every sector of our economy, every corner of our country, will benefit. This is how we will get Australians back to work.”

Huge investments in manufacturing and infrastructure

As part of this year’s Budget the Government has outlined wide-ranging programs to reinvigorate the manufacturing sector, in addition to an ambitious program of nation-building infrastructure development.

It has announced six national manufacturing priorities under a $1.3 billion Modern Manufacturing plan:

• Food and beverage manufacturing
• Resources technology and critical minerals processing
• Medical products
• Recycling and clean energy
• Defence industry
• Space industry

This will be backed by $2 billion that has been allocated to research and development, including:

• A $459 million boost to the CSIRO.
• $1 billion for university research funding.
• $1.9 billion in funding for low emission and renewable technologies.

The Federal Government has also announced an expansion of its 10-year infrastructure pipeline, including $14 billion in infrastructure projects to support the creation of 40,000 jobs. The Government has set aside $7.5 billion to invest in national transport infrastructure², including $2 billion in road safety upgrades and $1 billion local councils road upgrades.

The major projects that have been announced include:

• The Singleton Bypass and Bolivia Hill Upgrade in New South Wales
• The upgrade of the Shepparton and Warrnambool Rail Lines in Victoria
• The Coomera Connector in Queensland
• The Wheatbelt Secondary Freight Network in Western Australia
• The Main South Road Duplication in South Australia
• The Tasman Bridge Upgrade in Tasmania
• The Carpentaria Highway Upgrades in the Northern Territory
• The Molonglo River Bridge in the Australian Capital Territory

These projects will have a myriad of benefits for business. A more efficient roads and rail network will help boost business productivity. It will also support and provide work for the many businesses operating in infrastructure, engineering and consulting that will benefit from supplying goods and services as national infrastructure programs are rolled out. This funding is in addition to the $11.3 billion in funding already allocated to infrastructure spending in response to the COVID-19 pandemic.

Focus on regional recovery

The Government has put together a package to support businesses in rural and regional areas including $2 billion in loans for farmers to recover from the drought, $350 million to attract domestic tourists to regional areas and $317 million for exporters to access global supply chains.

This is a comprehensive and far-reaching suite of measures that is intended to support the Australian economy now and into the future.
 

1 https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/speeches/budget-speech-2020-21
2 https://www.pm.gov.au/media/morrison-government-delivers-75-billion-boost-transport-infrastructure-across-nation

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Disclaimer:

The content in this page has been prepared by BT, a part of Westpac Banking Corporation ABN 33 007 457 141 AFSL and Australian Credit Licence 233714 (Westpac) and is current as at 6 October 2020.

The information regarding taxation and legislative change is based on policy announcements which are yet to be passed as legislation and may be subject to future change.

This information does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness, having regard to these factors before acting on it.