2020 Budget: The ‘COVID-19 Recovery’ proposed measures

The Federal Budget is an annual document created by the Government, which serves to outline the economic and fiscal outlook for Australia. It includes expenditure and revenue estimates for the current financial year, the budget year and three forward financial years.

In previous years, the Budget has traditionally been delivered in May, though due to the COVID-19 pandemic, it was delayed and Treasurer Josh Frydenberg delivered the 2020-21 Budget on 6 October 2020.

Below, we provide an overview of this year’s Budget*, with particular focus on the Government’s economic and fiscal outlook, and the main announced proposed measures that may relate to you and your personal finances.

Please note: We have not included the measures previously highlighted in our recent article, 2020 ‘mini-budget’: An economic & fiscal outlook, as they remain unchanged. For example, the COVID-19 early release of super, Coronavirus Supplement and JobSeeker Payment, the HomeBuilder grant, and the JobKeeper Payment.

Budget overview

Budget priorities

The economic, financial, physical, mental and emotional issues arising due to the COVID-19 pandemic—which immediately followed the devastating bushfires and drought—have undoubtedly been felt by many of us.

Importantly, during this difficult time, the Government has provided, and continues to provide, much-needed support to many Australian individuals, households and businesses. And, the Budget aims to further extend upon this support.

The Budget priorities, and resulting announced proposed measures, contained in the Government’s ‘COVID-19 Economic Recovery Plan’, focus on rebuilding our economy, creating jobs and securing Australia’s future:

• Health response measures*
• Economic response measures
• Supporting business to create jobs
• Supporting Australians back into jobs
• Supporting aggregate demand to create jobs

*As it stands, in terms of COVID-19^, globally, there are a reported 35,731,494 cases, 1,047,838 deaths, and 24,859,671 recoveries. And, nationally, there are a reported 27,181 cases, 897 deaths, and 24,915 recoveries.

Economic and fiscal outlook

Major economic parameters overview

*Real GDP and nominal GDP are percentage change on preceding year. The consumer price index, employment, and the wage price index are through the year growth to the June quarter. The unemployment rate is the rate for the June quarter.

Source: ABS Australian National Accounts: National Income, Expenditure and Product; Labour Force, Australia; Wage Price Index, Australia; Consumer Price Index, Australia; and Treasury.

Budget aggregates overview

*Excludes expected net Future Fund earnings before 2020-21.

^Net debt is the sum of interest bearing liabilities (which include Australian Government Securities (AGS) on issue measured at market value) minus the sum of selected financial assets (cash and deposits, advances paid and investments, loans and placements.

^#Gross debt measures the face value of AGS on issue.

Individual taxation

Bringing forward the second stage of the Personal Income Tax Plan

The Government will bring forward Stage 2 of the Personal Income Tax Plan from 1 July 2022 to 1 July 2020 (backdated). To summarise, Stage 2 includes the following:

• The top threshold of the 19% personal income tax bracket will increase from $37,000 to $45,000.
• The low income tax offset (LITO) will increase from $445 to $700 (and decrease at a rate of 5 cents per dollar between taxable incomes of $37,500 and $45,000, and decrease at a rate of 1.5 cents per dollar between taxable incomes of $45,000 and $66,667).
• The top threshold of the 32.5% personal income tax bracket will increase from $90,000 to $120,000.

Please note: Stage 3 of the Personal Income Tax Plan remains unchanged and commences in the 2024-25 financial year, as legislated.

Retaining the low and middle income tax offset for the 2020-21 financial year

The Government will retain the low and middle income tax offset (LMITO) for the 2020-21 financial year—the LMITO was due to be removed with the commencement of Stage 2 of the Personal Income Tax Plan. To summarise, the LMITO provides a reduction in tax of up to $1,080:

• Taxable income ≤$37,000, a tax offset of $255,
• From $37,001 to $48,000, a tax offset of $255 plus 7.5 cents per dollar above $37,000,
• From $48,001 to $90,000, a tax offset of $1,080, and
• From $90,001 to $126,000, a tax offset of $1,080 minus 3 cents per dollar above $90,000.

Increasing the Medicare Levy low-income thresholds

The Government has increased the Medicare levy low-income thresholds for singles, families, and seniors and pensioners for the 2019-20 financial year. The Medicare levy low-income thresholds have increased:

• From $22,398 to $22,801 for singles,
• From $37,794 to $38,474 for families*,
• From $35,418 to $36,056 for single seniors and pensioners, and
• From $49,304 to $50,191 for family seniors and pensioners.

*For each dependent child or student, the family income thresholds increase by a further $3,533 (previously $3,471).

Company taxation

Fringe benefits tax exemption to support retraining and reskilling

The Government will introduce an exemption from the 47% fringe benefits tax (FBT) for employer-provided retraining and reskilling benefits provided to redundant, or soon to be redundant employees where the benefits may not be related to their current employment.

This measure applies from announcement. The FBT exemption will not apply to retraining acquired through a salary packaging arrangement, Commonwealth supported places at universities or repayments towards Commonwealth student loans.

Increase the small business entity turnover threshold

The Government will expand access to a range of small business tax concessions by increasing the small business entity aggregated annual turnover threshold for these concessions from $10 million to $50 million.

Businesses with an aggregated annual turnover between $10-50 million will have access to these small business tax concessions in three phases:

• From 1 July 2020 (backdated), eligible businesses will be able to immediately deduct certain start-up and prepaid expenses.
• From 1 April 2021, eligible businesses will be exempt from the 47% fringe benefits tax on car parking and multiple work-related portable electronic devices provided to employees.
• From 1 July 2021, eligible businesses will be able to access the simplified trading stock rules, remit PAYG instalments based on GDP adjusted notional tax, and settle excise duty and excise-equivalent customs duty monthly on eligible goods under the small business entity concession. Eligible businesses will also have a two-year amendment period applied to income tax assessments for financial years starting from 1 July 2021, excluding entities with significant international tax dealings or overly complex affairs.

The eligibility turnover thresholds for other small business tax concessions will remain at their current levels.

Temporary full expensing to support investment and jobs

The Government will allow businesses with an aggregated annual turnover of <$5 billion to deduct the full cost of eligible capital assets acquired from 7:30pm AEDT on 6 October 2020 and first used or installed by 30 June 2022.

Full expensing in the year of first use will apply to new depreciable assets and the cost of improvements to existing eligible assets. For businesses with an aggregated annual turnover of <$50 million, full expensing also applies to second-hand assets.

Furthermore, businesses with an aggregated annual turnover between $50 million and $500 million can still deduct the full cost of eligible second-hand assets costing <$150,000 purchased by 31 December 2020 under the enhanced instant asset write-off. Businesses that hold assets eligible for the enhanced $150,000 instant asset write-off will have an extra six months, until 30 June 2021, to first use or install those assets.

Temporary loss carry-back to support cash flow

The Government will allow eligible businesses to carry back tax losses from the 2019-20, 2020-21 or 2021-22 financial years to offset previously taxed profits in 2018-19 or later financial years.

Business entities with an aggregated turnover of <$5 billion can apply tax losses against taxed profits in a previous financial year, generating a refundable tax offset in the financial year in which the loss is made.

The tax refund would be limited by requiring that the amount carried back is not more than the earlier taxed profits and that the carry back does not generate a franking account deficit. The tax refund will be available on election by eligible businesses when they lodge their 2020-21 and 2021-22 tax returns.

Boosting apprenticeships wage subsidy

The Government will allow businesses of any size can claim the new Boosting Apprentices Wage Subsidy for new apprentices or trainees who commence from 5 October 2020 to 30 September 2021.

Eligible businesses will be reimbursed up to 50% of an apprentice or trainee’s wages worth up to $7,000 per quarter, capped at 100,000 places.

JobMaker Hiring Credit

The Government will support employers to take on additional employees through a hiring credit. The JobMaker Hiring Credit will be available to eligible employers over 12 months for each additional new job they create for an eligible employee between 7 October 2020 and 6 October 2021:

• $200 per week if they hire an eligible employee aged 16-29 years, or
• $100 per week if they hire an eligible employee aged 30-35 years.

To be eligible, the employee will need to have worked for >20 hours per week, averaged over a quarter, and received the JobSeeker Payment, Youth Allowance (other) or Parenting Payment for at least one month out of the three months before their hiring.

Housing

Driving jobs through housing

The Government will extend the First Home Loan Deposit Scheme (FHLDS) to provide an additional 10,000 guarantees in 2020-21 to allow eligible first home buyers to build a new home or purchase a newly constructed home sooner with a deposit of as little as 5%.

Exempting granny flat arrangements from capital gains tax

The Government will provide a targeted capital gains tax (CGT) exemption for granny flat arrangements where there is a formal written agreement. The exemption will apply to arrangements with older Australians or those with a disability. The measure will take effect from the first financial year after the date of Royal Assent of the enabling legislation.

Superannuation

Superannuation reform

The Government will implement reforms to super to improve member outcomes. These reforms include:

• An existing super account will be ‘stapled’ to a member to avoid the creation of a new account when that person changes their employment.
• The ATO will develop systems so new employees will be able to select a super product from a table of MySuper products through a new online YourSuper comparison tool.
• From July 2021, APRA will conduct benchmarking tests on the net investment performance of MySuper products, with products that have underperformed over two consecutive annual tests prohibited from receiving new members until a further annual test that shows they are no longer underperforming. Non-MySuper accumulation products will be added from 1 July 2022.

Facilitating the closure of eligible rollover funds amendment

The Government will amend the Treasury Laws Amendment (Reuniting More Superannuation) Bill 2020 to:

• defer by 12 months the start date of the measure that prevents super funds transferring new amounts to eligible rollover funds (ERFs)—an ERF generally holds the benefits of members who can’t be located.
• defer the date by which ERFs are required to transfer accounts below $6,000 to the ATO to 30 June 2021.
• defer the date by which ERFs are required to transfer remaining accounts to the ATO to 31 January 2022.
• allow all super funds to voluntarily transfer amounts to the ATO in circumstances where the trustee believes it is in the best interests of that member, such as amounts that would otherwise have been transferred to an ERF.

Revised start dates for superannuation measures

The Government will change the start date for the 2018-19 Budget measure Superannuation—increasing the maximum number of allowable members in self-managed super funds and small APRA funds from four to six from 1 July 2019 to the date of Royal Assent of the enabling legislation.

Social Security

Recognising the impacts of COVID-19 for Youth Allowance and ABSTUDY independence

The Government will temporarily revise the independence test for those applying for Youth Allowance and ABSTUDY from 1 January 2021. Under the exemption, the six-month period between 25 March 2020 and 24 September 2020 will automatically be recognised as contributing to an applicant’s independence test, regardless of whether they meet employment requirements.

Further economic support payments

The Government will provide two separate $250 economic support payments, to be made from November 2020 and early 2021 to eligible recipients of the following payments and concession/health care card holders:

• Age Pension
• Carer Payment
• Disability Support Pension
• Commonwealth Seniors Health Card Holders
• Carer Allowance (not in receipt of a primary income support payment)
• Eligible Veterans’ Affairs payment recipients and concession card holders
• Pensioner Concession Card holders (not in receipt of a primary income support payment)
• Family Tax Benefit, including Double Orphan Pension (not in receipt of a primary income support payment)

The payments are exempt from taxation and will not count as income support for the purposes of any income support payment.

Child care support measures

The Government will continue the easing of Child Care Subsidy (CCS) activity test requirements until 4 April 2021, to support eligible families across Australia whose employment has been impacted by COVID-19.

Other measures

The Government will provide:

• $1.6 billion over four years from 2020-21 for the release of an additional 23,000 home care packages across all package levels.
• $19.5 million over four years from 2020-21 to improve the access and affordability of private health insurance. This includes increasing the maximum age of dependants allowed under private health insurance policies from 24 years to 31 years, and removing the age limit for dependants with a disability.
• $90.3 million over three years from 2020-21 for concessional work test arrangements for Paid Parental Leave in response to COVID-19. Specifically, relaxing the Paid Parental Leave work test for births and adoptions that occur between 22 March 2020 and 31 March 2021 to allow parents to qualify for the payment if they have worked in 10 of the last 20 months, instead of 10 of the last 13 months, preceding the birth or adoption of a child.
• $1.7 billion over two years from 2020-21 to secure access to over 84.8 million doses of potential vaccine candidates developed by the University of Oxford and the University of Queensland. The Government is also investing $123.2 million to join the international COVAX facility, to provide Australia access to a large portfolio of vaccine candidates around the world.

Moving forward

In this year’s Budget, many proposed measures were announced. We have focused predominantly on the main proposed measures that may relate to you and your personal finances.

For more information on this year’s Budget and what it may mean for you, please watch:

• ABC News’ Greg Jennett explain the key numbers, and
• Deloitte Access Economics’ Chris Richardson and Burman Invest’s Julia Lee discuss their thoughts.

Please contact us if you wish to discuss any aspect of this year’s Budget or how it may affect you.

*Australian Government. (2020). Budget 2020-21 papers.

^Center for Systems Science and Engineering (CSSE). GIS Dashboard: Coronavirus COVID-19 Global Cases by Johns Hopkins CSSE.