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The Federal Budget – a brief overview

7 Oct 2020
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The budget dropped overnight which, given the very unique environment, has all eyes on it.

Much of what was announced has been speculated on in the media recently but there were a few big measures taken that I think is worthy of mentioning. Overall, it looks a very positive budget considering the current headwinds the economy is facing and rightfully continues the big government spend consistent with the ‘throw everything but the kitchen sink’ at the economy mentality and the largely consensus view that we will worry about the debt when the world returns to normal.

I will get Chris Ayling of Arum Advisory (Rivkin’s accounting partner) to provide an in-depth analysis as soon as he has digested the budget, but for today these are my main takeaways.

  • The big change is perhaps the instant asset depreciation that businesses with less than $5bn in annual revenue will be able to claim. This will allow 99% of Australian businesses to write off the full value of eligible assets and will be a huge cash flow benefit for businesses and will encourage capital spending to take advantage of the change. Why I like this particularly is that this will actually only defer the government’s revenue and will minimise future depreciation deductions, but businesses are struggling now so this change makes sense without a huge long-term impact on the national debt.
  • Income tax changes are significant and will be back dated to 1 July which means a lot less tax will be paid and, in most cases, a big tax deduction will be coming at the end of this financial year.
  • A wage subsidy will replace Jobkeeper at the end of March which I think will target the employment rate far more effectively. Jobkeeper was a great measure when little was known about how the economy will be affected, but there is no point keeping people employed in jobs that will disappear the moment Jobkeeper is removed but a wage subsidy helps those businesses wanting to reopen or ramp up and will encourage those businesses to hire. These businesses were effectively exempt from benefits with Jobkeeper and only applied to existing employees.

 

 

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