Federal Treasurer Josh Frydenberg last night handed down the 2021 Budget in what can best be described as a pre-election budget for the ages.
The deficit for 2020-21 at $161 billion is almost $53 billion better than forecast in last year’s delayed 6th October Budget. Whilst forward estimates have the deficit falling again next year, deficits are predicted to continue for the next decade, which is in far contrast to the Coalition’s usual stance of fiscal responsibility. It’s also worth noting that the federal governments net debt will peak at almost $1 trillion by 2024-25, a very big number, but something that’s likely to be glossed over in the context of very low rates, central bank money printing, and the much larger indebtedness of other developed countries.
Key areas of focus are tax cuts, Covid-19 measures, job creation, aged care, mental health, childcare, national disability insurance scheme, and infrastructure.
The Winners include:
· Business – loss carry-back provisions and full expensing of assets
· Aged Care – sector gets a $17.7 billion funding boost over 4 years
· Low and middle income earners – up to 10 million will receive another tax offset of up to $1,080 or $2,160 couples in their refunds
· National Disability Insurance Scheme – an extra $13.2 billion over 4 years
· First Home Buyers – increased cap in savings for first home deposit scheme
· Parents – families with 2 or more children under 5 will receive subsidies of up to 95% of their child care costs
· Infrastructure & Construction – another $10 billion over 10 years added to existing infrastructure plans
The Losers include:
· Overseas travellers – international borders won’t re-open until mid-2022
· Tourism industry - no additional support from the $1.2 billion already provided
· Future generations & the Australian tax-payer – who will likely foot the bill for the deficits and ballooning debt
· Our neighbours – foreign aid will decline by 10.5% and then continue sliding
· Universities – no extra funding whilst foreign students remain stuck overseas
In summary, rapidly recovering employment, sky-high iron ore prices, surging house prices, high household savings rates, record highs in consumer and business confidence, and now a massive budget, will likely see the economy experience a stimulus-fuelled mini-boom in the next couple of years.
Monthly Jargon Buster – GDP:
Gross Domestic Product. A measurement in dollar terms of aggregate goods and services produced within a particular economy over a year excluding income earned outside the country. Considered one of the main yardsticks of the health and vitality of the particular economy.
Smart Money Tip:
Set financial goals – have a plan to work towards and make your goals clear. Most importantly, develop an action plan to make them happen. For instance, open a dedicated account to save for home deposit or begin a regular savings programme into shares and other investments which have the ability to compound and grow over time. There are plenty of online calculators available that can show how much you need to save each week to reach your target amount.
Keep an eye out for June’s insight, as this will be an important article as we approach the end of FY 2021.
Synergy Private Wealth
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