Federal Budget 2019-20
The Government announced this evening that the 2019-20 Federal Budget delivers a surplus for the first time in over a decade.
The Treasurer, Josh Frydenberg, said that this year’s Budget reinforces the Government’s ‘commitment to investing in Australia’s future by strengthening the economy and guaranteeing essential services, while keeping taxes low.’
There is consensus that Australia’s economy remains in fundamentally good shape. Employment growth has been strong, the unemployment rate is at its lowest level in more than seven years and the participation rate is at a near-record high. However, there are a range of risks to the economy both domestically and abroad.
The underlying cash balance for the Budget is forecast to be a surplus of $7.1 billion in 2019-20, with surpluses projected to build to more than 1 per cent of GDP in the medium term.
With the return to surplus, the Government is seeking to focus again on paying down debt: over the medium term, net debt is projected to be eliminated entirely and gross debt is projected to fall to 12.8 per cent of GDP.
The key Budget measures announced today were across three broad areas: tax cuts for individuals, infrastructure spending, and funding for ‘essential services’ (healthcare, aged care, and education).
One of the cornerstone policies announced in this Budget is the Government’s plan to deliver lower taxes by:
- providing tax relief to low- and middle-income Australians, with immediate relief of up to $1,080 for singles, or up to $2,160 for dual income families, and structural reform so a projected 94 per cent of Australian taxpayers will face a marginal tax rate no higher than 30 per cent in 2024-25;
- providing lower taxes to small and medium-sized businesses by increasing the instant asset write-off and expanding access to it alongside the lower tax rates the Government has already legislated; and
- safeguarding the integrity of the tax system by ensuring everyone, including multinationals and big business, pay their fair share.
Another key feature of this year’s Budget is a proposed significant increase in infrastructure spending to $100 billion over the next decade. This recognises the role of infrastructure in managing population growth, easing congestion and ensuring towns and regions are better connected. Relevant measures include:
- a new fast rail plan for Australia including a $2 billion contribution to the Melbourne-Geelong fast rail project;
- a $3 billion increase in the Urban Congestion Fund including $500 million for a new Commuter Car Park Fund;
- an additional $1 billion for the next phase of the Roads of Strategic Importance initiative; and
- $15.6 billion for additional road and rail projects across the country.
The Government also announced policies in key areas considered ‘essential services’ for all Australians by:
- strengthening Medicare to ensure that Australians can access quality and affordable healthcare;
- providing more affordable access to medicines through additional listings on the Pharmaceutical Benefits Scheme;
- continuing to strengthen the safety, quality, integrity of and access to Australia’s aged care system;
- providing $291.6 billion to the end of 2029 for government and non-government schools, while working with states and territories to lift student outcomes;
- investing $525.3 million to modernise the vocational education and training sector, including 80,000 new apprenticeships;
- providing $3.4 million over four years from 2019-20 to encourage more women into science, technology, engineering and mathematics (STEM) education and careers.
A number of measures announced in the Budget may be relevant to our members across the private capital industry. Details are provided below.
Increasing and expanding access to the instant asset write-off
The Government is increasing and expanding access to the instant asset write-off, increasing the instant asset write-off threshold from $25,000 to $30,000 and giving medium sized businesses (with aggregated annual turnover of $10 million or more, but less than $50 million) access to the instant asset write-off that was previously only available for small businesses (those with aggregate turnover of less than $10 million).This measure is designed to improve cash flow for small and medium sized businesses, and the Government aims to provide a boost to business activity and investment through this measure.
Supporting Australian Exports
The Government aims to provide $61 million over three years from 2019-20 to support Australian businesses exporting goods and services to overseas markets. This amount will comprise $60 million in increased funding for the Export Market Development Grants scheme to boost reimbursement levels of eligible export marketing expenditure for small and medium enterprise exporters, with the balance to further promote Australian export industries to overseas markets.
Medical Research Future Fund Translation measures
The Government announced a $5 billion Ten Year Investment Plan for the Medical Research Future Fund (MRFF). $1.2 billion of the funding will go towards initiatives that help to translate research ideas into products and clinical practice, including $254 million for the commercialisation of medical research.
Social Impact Investing
The Government announced two measures to help develop the social impact investing market in Australia.Firstly, a taskforce within the Department of the Prime Minister and Cabinet will be established to examine the Commonwealth’s role in the Social Impact Investment market and develop the next stage of a strategy for the Commonwealth’s role in the market, leveraging international, private sector and state and territory government experience to identify a way forward for the Commonwealth’s social impact investments, including how these investments can provide solutions for entrenched disadvantage.
Secondly, the Government will provide funding to establish three social impact investment trials in the social services sector. The trials will be of payment-by-outcome arrangements for initiatives that increase the workforce participation of people who receive income support payments and strengthen the wellbeing and self-reliance of families with children.
Clarifying the operation of the hybrid mismatch rules
The Government will seek to make a number of minor amendments to Australia’s hybrid mismatch rules, including stipulating how the rules apply to MEC groups and trusts, limiting the meaning of foreign tax, and specifying that the integrity rule can apply where other provisions have applied will give greater certainty to taxpayers in complying with the rules.
The 2019-20 Budget also revealed that the Government expects the cost of the refundable component of the R&D Tax Incentive program to be lower than was expected last year. Over the 2019-20 period, it is estimated to now cost $2.2 billion compared with last year's estimate of $2.5 billion. It remains unclear whether these new figures reflect the proposed cuts to the R&D Tax Incentive flagged in the 2018-19 Budget now that the bill effecting those changes is unlikely to be put through parliament before the May federal election.
For more detail and to access the Budget Papers, visit: https://www.budget.gov.au/
In February 2019, the Australian Investment Council lodged a pre-budget submission with Treasury to share its views on the importance of building and future proofing a sustainable and growing national economy.