Whereas last year’s Budget was “unprecedented”, this year’s 2021-22 Federal Budget is “predictable” in its stated aim of “securing Australia’s recovery”. Weeks of leaked measures also help that predictability and takes the old school bang out of the Budget - it is a wonder we have a Budget night anymore!
Budget surpluses are now no longer the target. Instead, driving down unemployment and increasing spending in the public and the private sectors are the “new normal” goals. In pursuit of these goals, the Budget reverses years of neglect of various sectors of society, such as the elderly and socially disadvantaged. There is also a splash of cash for new areas, such as on women’s safety and economic security. We will have to see whether the impact of these collective measures will have the desired effect and lead to the reduction in unemployment and wage growth (and resulting inflation) that the Reserve Bank and the broader community is looking for.
Most industries and taxpayers will benefit from the Budget’s measures. However, genuine structural tax reform is again missing, with economists already questioning the adequacy of measures.
Nonetheless, with a healthy population and a largely open economy, Australia has a great springboard to meet the future. It is a shame the Budget does not do more to promote Australia’s longer term policy objectives.
Getting back on track
Despite the forecasts of disaster during the early stages of COVID, a healthy population and a largely open economy provide a sound basis for recovering from the first recession in 30 years.
The Budget forecasts that the deficit will nearly halve over the next four years (but not before increasing further), with net debt peaking at $980.6 billion in 2024-25.
The unemployment rate is forecast to reduce from 6.9% in 2019-20 to just 4.5% in 2024-25. However, only a marginal increase in the wage price index is expected over that time, from 1.8 to 2.75. This keeps the consumer price index (CPI) largely static. The Reserve Bank has already flagged wage growth as important to achieving CPI increases to an acceptable level.
Key Measures to the Australian Federal Budget
