Background to the 2021 Federal Budget

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Over a year has passed since governments around the globe realised they were dealing with a pandemic, and the impact of the Covid-19 virus has been far reaching. In Australia, the front-line health response and responsibility for ongoing protection of the community was left to each State Government, while the Federal Government implemented financial support measures such as JobKeeper and JobSeeker. These were designed to protect jobs whilst allowing isolation of the population.

These measures and outright financial support from governments have been successful in creating economic growth. The 2021 forecasted underlying cash balance deficit of $161 billion is an improvement of some $36.7 billion from the forecasted $197 billion disclosed just six months ago in the mid-year update in December 2020. In addition, the various policies by the Reserve Bank have given the domestic economy a huge boost.

The forecasted deficits over the next four years as a result of this support are the largest in Australia’s history. Economists are quick to point out the cost is manageable due to low interest rates globally. Debt servicing costs when measured as a percentage of gross domestic product remains at a historical low of around 0.7% of GDP.

The 2021 Federal Budget is a continuation of the fiscal support that started in March 2020. The stated goal of this continued support is to drive the unemployment numbers to pre-Covid levels or lower.

Just what consequences will come of such large stimulus packages will only be shown in the future. The logic that debt can be paid by proceeds of growth is compelling, however it would perhaps be naive to expect there is no possibility of negative consequences from such large and sustained fiscal and monetary stimulus.

The Budget measures are outlined in a summary form below. If you consider any of these measures relevant to your circumstances, please feel free to reach out to discuss these in more detail.

Note: These changes are proposals only and may or may not be made law.

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