Federal Budget: Crystal Ball

BDO Australia has predicted two key stimulus responses will form a key part of the forthcoming Federal Budget, to be delivered on Tuesday 6th October.

Mark Molesworth, Tax Partner at BDO in Australia said the two levers the Government could look to pull to spur on post-lockdown economic rebound were:

  1. Personal Income tax cuts
  2. Business investment incentives – such as wage subsidies.

“The Australian economy is in its first recession in 29 years and there’s no doubt the Government will be looking at fiscal stimulus to get the engine started again,” Mark said.

“Bringing forward the personal income tax cuts, schedule to start on July 1st 2022, have already been flagged as being a feature of the budget and the Treasurer is hoping that by increasing take-home pay consumers will start spending.

“But tax cuts alone will not be enough to drive a worthwhile stimulus response, particularly as we’ve seen the current behaviour of consumers is to save not spend.

“This has been shown by a huge increase in savings rates from *6% for the quarter Dec 2019 – March 2020 to 19% in the quarter March 2020 – June 20.

“More Australians are being frugal with their money so a tax cut will not inspire a spending spree even with Christmas approaching.

“To encourage consumer spending it would be better to look at business investment incentives.

“The Government should instead focus more on the potential stimulus that could be afforded by introducing an:

  • Investment Allowances for business – Government could provide incentives to buy assets and expand business operations
  • Employee headcount rebate – paid as a tax benefit in cash per new full time equivalent employee created by a business.

“The other anxiety hanging over the shoulder of small to medium businesses is the retesting of revenue for JobKeeper in the September quarter.

“Many businesses who were able to get back to work after the first round of State-imposed lockdowns have seen revenues tracking above the testing rate, which would be an own-goal if there were future restrictions, and business fell off a cliff again.”

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Date: Wednesday 7 October 2020
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