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While an election is expected by May next year and a pre-election Budget tipped for March 2025, this Budget’s prime focus is on securing Australia’s economic sovereignty, with initiatives such as the Future Made in Australia Act at the forefront.
The government announced a $9.3b surplus this year off the back of generous company tax receipts – a pleasant surprise after the $1.1b deficit forecasted in the Mid-Year Economic and Fiscal Outlook in December. However, this will swing into a $28.3b deficit in 2024-25, with greater deficits in the years following than previously forecasted. Net debt is sitting at $499.9b, and NDIS spending has blown out by $5.4b, to $44.3b in 2023-24.
As part of the Government’s $22.7b Future Made in Australia initiative which aims to support sovereign manufacturing, supply chains and the renewable energy transition, the Government pledged grants, loans and equity injections early on including $1b for solar panels, $1.4b for critical mineral projects, and $2b for hydrogen. The Government has also announced $940m in joint funding with the Queensland Government for tech startup PsiQuantum to build the world’s first commercially used quantum computer.
In an effort to ease the cost-of-living pressure on Australians while not stimulating stickier than expected inflation, this Budget implemented the Stage 3 tax cuts, among other initiatives already announced including paid superannuation on parental leave, $3b for HECs reforms, and trainee teachers, nurses and social workers were also given a $23m per year boost to cover their costs while undergoing placements.
Housing was also a key theme of this year’s Budget – with $6.2b in new investments for housing, along with $88.8m provided to boost skilled workers in the construction sector to facilitate the Government’s goal of reaching 1.2m more homes over the next five years. However, supply chain issues and raw material costs remain an issue for the construction sector, particularly for small businesses susceptible to collapse in this economic climate. It remains to be seen how the Government will tackle these issues.
More recently, the Government announced $160m to push through Tranche 2 of the Anti-Money Laundering changes, and $2b fund for business investment into South-East Asia. A review of Australia’s R&D scheme is welcome news, however there needs to be focus on attracting investment into Australia. It’s highly possible investment into Australia by multinational corporations may be stymied with the recent raft of reforms to multinational tax including thin capitalisation, exposure draft legislation on public Country-by-Country Reporting, and ATO court action in relation to royalties on IP and intangibles.
However, Labor has still not addressed the very real generational structural issues in the Budget, or the kind of ambitious tax reform that businesses and other stakeholders have been increasingly asking for. In a stark reminder of last year’s Budget, we’re still reliant on personal income tax as one of the main sources of incoming revenue, with 47.2 per cent – or $335.6b – of government revenue attributable to personal income tax – and this will only grow in coming years. The Henry Report brought this to the fore 14 years ago now. Such a reliance on personal income tax removes the incentive to work, invest and attract international talent and capital – the very things we need to maintain Australia’s competitive edge.
This was recently echoed by the OECD, who urged Australia to address the structural Budget deficit through meaningful tax reforms. The OECD also suggested the world economy is lifting and inflation is expected to cool quicker than predicted in some countries, with China, India and the United State’s growth improving better than expected. However, with global growth slowing due to an ageing global population, falling fertility rates, and limited labour supply, we’re living in a very different world than we were pre-COVID.
The global economy and geopolitical environment has changed – and if our trading partners are facing the same supply side difficulties, inflation, and market forces we are here locally, how will that affect Australian businesses? Australia has put its support firmly behind our own sovereign capabilities by reinvigorating our manufacturing sector with the Made in Australia agenda. Is globalisation as relevant as it used to be – or are we going to see the trend of countries turning inward and focus on sovereign capabilities continue?
Post-COVID, businesses are feeling the pressure of inflation and the costs of doing business – this time without the safety net of the temporary insolvency initiatives implemented during COVID. While the Government extended the instant asset write-off for another year, announced energy bill relief, and $290m in cash flow support and for small businesses, many businesses are already doing it tough. Now with increased sustainability and climate reporting requirements, and tighter labour rules coming in next financial year with Labor’s industrial relations changes, the Government needs to think about how to mitigate additional pressures on businesses and stimulate productivity and growth.
The Government has been clear this Budget’s aim was to alleviate cost of living pressures while not stimulating inflation, with a clear focus on housing, developing Australia’s onshore capabilities and diversifying the economy. But does it support all facets of the economy? Majority of the tax reform seen in this Budget – so called ‘tinkering around the edges’ – are incentives for businesses in the Government’s priority sectors, namely green energy and manufacturing – and it appears mid-size businesses have been overlooked. Of course, with the Government rising to power on the promise of developing Australia’s sovereign manufacturing capabilities, this Budget centres on delivering that promise – but at what cost?
