Australian Beverages Council Budget Analysis
7 October 2020
Major spending in Federal Budget bonanza
In delivering his second and belated Federal Budget last night, Treasurer Josh Frydenberg announced a series of major cash injections following a year of challenges, including flood, fire, drought and pandemic.
A Budget notable as one of the most critical in living memory, the Treasurer announced greater investment in infrastructure and support for business would be achieved while decreasing taxes, appealing not only to a broad swathe of workers with backdated tax cuts, but to corporate Australia too. For an economy reeling from the worst recession in almost a century, essentially it is a Budget built on encouraging the return of confidence for businesses and consumers alike.
Last night, the Treasurer warned of the “monumental” task ahead to repair the Australian economy and while many of the measures announced earlier in the year were described as “temporary and targeted”, it’s expected much of the spending will continue well into next year and likely beyond that.
The Treasurer attempted to strike a balanced tone last night, highlighting many groups in society crucial to the government’s re-election hopes should an early election be on the cards. The Treasurer was eager, too, to underscore that Australia continues to perform significantly better than comparable OECD countries, such as the United Kingdom, United States and New Zealand.
The Treasurer revealed the deficit will reach $213.7 billion in 2020, before falling to $66.9 billion in 2023-24. Combined deficits over the forward estimates amount to $480.5 billion. Gross debt is expected to reach 44.8 per cent of GDP by the end of 2020-21, increasing to 51.6 per cent of GDP by the end of the forward estimates, and stabilising at around 55 per cent of GDP in the medium term. Net debt will be $703 billion in 2020-21, equal to 36.1 per cent of GDP, and will peak at $966 billion in June 2024, equal to 43.8 per cent of GDP.
Since 2018, the Treasurer has been at great pains to balance the books and deliver a surplus so elusive to his most recent predecessors. In the current circumstances that is, understandably, unachievable. Job creation and investment have replaced a surplus as the Treasurer’s preferred measures of economic health. Additionally, the Treasurer will be cognisant of the signals from the Reserve Bank of Australia, which left rates on hold yesterday but flagged the cost of COVID-19 and high unemployment as key concerns – both being central to the Coalition’s pre-election messaging.
In the largest single measure in the Budget, worth a sizeable $26.7 billion, companies with annual turnover of up to $5 billion will get a tax break to write off the full cost of any depreciable asset purchased until 30 June 2022. This measure will be accompanied by a $4.9 billion loss carry-back scheme that allows businesses that record a loss to claim refunds or offsets on taxes paid in previous years.
Reiterating a commitment made last week, yesterday’s Budget 2020–21 announcement included funding for the $1.5 billion Modern Manufacturing Strategy. Last week, the ABCL welcomed the joint announcement of the Strategy by the Prime Minister and Minister for Industry, Science and Technology, the Hon Karen Andrews MP, and supported the development of industry-led recovery roadmaps for the next two, five and ten years.
As part of the announcement, it was particularly pleasing to see the Government’s continued support for Australian manufacturing and that the beverage (and food) sector has been chosen as one of six National Manufacturing Priorities. The support from the Modern Manufacturing Strategy is testimony to the opportunities that the industry can provide to the nation’s recovery and rebuild efforts, a position that was recently outlined in the ABCL’s recovery blueprint.
The ABCL-KPMG Recovery Blueprint, recently launched with the support of the Assistant Minister for Waste Reduction and Environmental Management, the Hon. Trevor Evans MP, maps out an ambitious post-Coronavirus recovery agenda to complement the Australian Government’s pro-growth and pro-jobs policies, identifying nine key inhibitors to growth and jobs creation, and supports business and the wider economy to get back on their feet quickly. Pleasingly the Budget Speech last night included a number of initiatives that aligned with the majority of points raised in the blueprint including R&D Incentives, company tax, instant asset write-offs, skills shortages, recycling manufacturing and energy prices.
Consistent with his first Budget, the Treasurer underscored the Government’s commitment to fund Australia’s economic recovery without increasing taxes, a key pitch to low- and middle-income earners. If the Senate approves the Bill, over 11 million taxpayers will receive a tax cut backdated to 1 July 2020, while the Government will lift the threshold for the 19 per cent tax rate to $45,000 and the 32.5 per cent threshold to $120,000. The Government will also retain the Low and Middle-Income Tax Offset for an additional year.
Highlights of the Budget
- Personal income tax relief of $17.8 billion in, with $12.4 billion over the next 12 months
- Stage 2 personal tax cuts brought forward to 2020-21
- A one-off additional low to middle income tax offset in 2020-21, of up to $2,745 for singles and $5,490 for dual income
- Business Investment – temporary full-expensing of any eligible depreciable investment by a business with a turnover of up to $5 billion
- Temporary loss carry-back – allowing companies with a loss of up to $5 billion to off-set losses against previous profits on which tax has been paid.
- JobHire Credit – supporting 450,000 positions for young people at a cost of $4 billion
- JobTrainer Skills package to further support and encourage apprentices and trainees. including the $1.2 billion Apprenticeships Wage Subsidy program
Summary of Key Revenue Expenditure
| Significant revenue reductions / expenditure increases 2020-24 | $ billion |
| Temporary deduction for the full cost of eligible assets for businesses with aggregated turnover of less than $5 billion | 26.7 |
| Bringing forward Stage 2 personal income tax cuts to apply retrospectively from 1 July 2020 | 17.8 |
| JobKeeper payment extension | 15.6 |
| New transport infrastructure investment (aggregate of numerous projects) | 7.5 |
| Temporary tax loss carry-back for eligible companies with turnover less than $5 billion – generating refundable tax offsets against previously-taxed profits | 4.9 |
| JobMaker hiring credit paid to eligible employers for taking on eligible employees aged 35 or under | 4.0 |
| Additional two $250 economic support payments for eligible welfare recipients | 2.6 |
| Enhancements to the research and development tax incentive | 2.0 |
Business Investment and Tax
The Budget has introduced temporary measures designed to stimulate business investment and deliver further cash flow benefits, including:
Company Loss Carry-back
Corporate tax entities with an aggregated turnover of less than $5 billion will be allowed to carry-back tax losses generated in the 2019-20, 2020-21 or 2021-22 income years to offset previously taxed profits in the 2018-19 or later income years effectively allowing tax previously paid to be refunded.
The carry-back rules will be implemented by way of a refundable tax offset that is generated in the year the loss is made. However, the offset for the 2019-20 income year can only be claimed on lodgement of the 2020-21 tax return effectively delaying, by a year, access to the benefit of the carry back of 2019-20 losses.
The tax refund available is limited to the carried back amount not exceeding the earlier taxed profits and will be effectively capped at the balance of a company’s franking account to avoid generating a franking account deficit.
In addition to providing cash flow support to previously profitable businesses that have a tax loss position as a result of COVID-19, this measure will also support the incentive for companies to invest in assets eligible for the full expense measures.
The application of the carry-back rules will be optional, and companies can continue to carry forward tax losses under the existing tax loss provisions.
Temporary Full Expensing
In the Budget, the Federal Government announced the introduction of a temporary tax incentive which builds on the enhanced instant asset write-off.
From 7:30pm (AEDT) on 6 October 2020 until 30 June 2022, businesses with turnover up to $5 billion will be able to deduct the full cost of eligible depreciable assets of any value in the year they are first used or installed ready for use. Due to the turnover thresholds, large capital-intensive industries, such as those in the mining and metals sector, will not be eligible. The cost of improvements made during this period to existing eligible depreciable assets can also be fully deducted.
Full expensing for second-hand assets will be limited to businesses with aggregated turnover of less than $50 million.
The previous enhanced $150,000 instant asset write-off will continue to be available for eligible businesses, who will have an extra six months, until 30 June 2021, to install those assets or use them for the first time.
Fringe Benefits Tax Measures
The Government will introduce a specific FBT exemption for retraining benefits provided to redundant or soon to be redundant employees. Without this measure, FBT would apply at a rate of 47 percent effectively doubling the cost of providing retraining benefits.
In a potentially significant win for the reduction of FBT administration costs, the Government will provide the ATO with increased powers to allow employers to rely on existing corporate records rather than the current prescribed declarations and other records employers and sometimes employees must maintain. This measure will apply from the FBT year commencing 1 April after the enabling legislation is enacted.
State Business Assistance Grants to be NANE Income
State government Covid-19 business assistance grants that would otherwise be assessable are will be treated as Non-Assessable Non-Exempt (or NANE) income. This brings the treatment of State grants into line with the Commonwealth Cash Flow Boost payments that were similarly treated as NANE income. Initially limited to the Business Support Grants announced by the Victorian Government on 13 September 2020, the treatment will be extended to similar programs for small and medium businesses facing similar circumstances to Victorian Businesses via a regulation making mechanism. The measure is limited to grants made before 30 June 2021.
Major Infrastructure Announcements
In infrastructure, the Government will add $10 billion to the 10-year infrastructure plan to build and upgrade roads, rails and bridges. Additionally, the Government will provide $2 billion for identified projects such as road safety upgrades, with a further $1 billion for local authorities to upgrade local roads, footpaths and street lighting. States that do not use the full amount of funds risk losing funds to another State in a clear signal to speed up the delivery of projects.
Major projects fast tracked across each State/Territory include:
- The Singleton Bypass and Bolivia Hill Upgrade in New South Wales
- The upgrade of the Shepparton and Warrnambool rail lines in Victoria
- The Coomera Connector in Queensland
- The Wheatbelt Secondary Freight Network in Western Australia
- The Main South Road Duplication in South Australia
- The Tasman Bridge Upgrade in Tasmania
- The Carpentaria Highway Upgrades in the Northern Territory, and
- The Molonglo River Bridge in the Australian Capital Territory
Energy
The Government is continuing to deliver a more affordable and reliable electricity system for Australians through measures to lower bills, secure the grid and drive investment in new energy infrastructure. This includes:
- Up to $250 million to accelerate major transmission projects such as Marinus Link, Project EnergyConnect and VNI West to the next stage. Together with the Government’s existing support for HumeLink and the QNI Interconnector, this means we are accelerating all priority transmission projects, creating thousands of new jobs, putting downward pressure on prices and shoring up the reliability of the grid;
- A $53.6 million microgrid program to support the development of pilot projects in regional Australia, building on the success of the current Regional and Remote Communities Reliability Fund. This will help deliver more affordable reliable power in regional communities across Australia;
- Helping connect the North West Minerals Province (NWMP) near Mount Isa to the NEM through further support for the CopperString high voltage transmission line. This will allow major users in the NWMP to access reliable and more affordable energy supply, and encourage further investment in mining and processing in the region;
- $28.5 million to deliver cheap and reliable energy to Western Australians through the South West Interconnected System Big Battery project and a WA-based microgrids program for remote and indigenous communities;
- $52.2 million to improve energy efficiency, lower bills and deliver abatement, including $24 million to fund building upgrades and reduce energy costs for community groups and for small and medium hotels; and
- $4.9 million over two years to improve cyber security in the energy sector and prepare government and industry for future threats.
Home Affairs and National Security
In recognition of new risks in the picture, this Budget highlights the importance of national security measures, including beefed up cyber security investment.
National Security
In a demonstration of national security as a key priority, the Budget provided $173.5 million over four years to strengthen the capacity of Australia’s national security agencies. In a considerable boost, AUSTRAC will receive $104.9 million over four years (including $48.9 million in capital funding) to strengthen its capacity to combat serious financial crime and protect Australia’s financial system from criminal activities. Further, a combined $128.1 million for the Australian Federal Police, the Department of Home Affairs and AUSTRAC to enhance their capabilities to fight cybercrime, including through improved coordination with States and Territories, as part of investments promised under the 2020 Cyber Security Strategy. The 2020 Federal Budget has also allocated funding to enhance the Government’s capability to identify, assess and address national security related issues for critical technologies ($15.6 million) and enhancement of the Safer Communities Fund ($35 million).
Cyber Security
Cyber security has received significant attention this year, through the release of Australia’s Cyber Security Strategy 2020 in August. Much of the budget’s cyber announcements were covered in depth in the strategy, but more detail has been provided in support of critical infrastructure investment in the electricity, gas and liquid fuel industries. $4.9 million over two years from 2020 will consolidate and strengthen this cyber capability. $256.6 million over two years will expend Digital Identity to improve access to government services and payments online. This funding will focus on developing world leading facial biometric liveness matching capabilities and will trial the use of digital identity with the states. This builds on investments in the Document Verification and Facial Verification Service, and government investment within the Digital Transformation Agency.
Home Affairs
Home Affairs has been allocated significant funding to support Australia’s economic recovery following COVID-19. This includes $29.8 million over two years to establish a Global Business and Talent Attraction Taskforce, and a further $28.6 million over two years to support modernisation of Australia’s trade system and streamline border services. This is in addition to a range of refunds and waivers designed to enable the safe movement of people and goods across the border to enable the COVID-19 response. Australia has committed $10.6 million to implement the National Action Plan to Combat Modern Slavery 2020-2025.
AFP
The government has committed to provide $300.2 million to the Australian Federal Police to maintain surge capacity and provide for a healthy and agile workforce. This includes introducing a new Australian Federal Police reserve force to assist with critical response needs; support for ongoing operations; and, recognition of the critical need to invest in regional health hubs to support the health and wellbeing of staff.
Personal Tax Cuts
The Government’s proposed Stage 2 individual tax rate changes scheduled to take effect from 1 July 2022 have been brought forward to 1 July 2020.
Stage 2 involves:
- Increasing the Low Income Tax Offset from $445 to $700 (resulting in an additional $255 in individuals’ pockets);
- Increasing the top threshold of the 19% tax bracket from $37,000 to $45,000 (a reduction in personal tax of $1,080); and
- Increasing the top threshold of the 32.5% tax bracket from $90,000 to $120,000 (providing tax relief of up to $1,350).
The Stage 3 changes (reducing the 32.5% bracket to 30%, increasing the upper limit of this bracket to $200,000 and removing the 37% bracket) will apply from 1 July 2024, as currently legislated.
At this point, the Budget estimates 95% of taxpayers will pay a marginal tax rate of no more than 30% (plus Medicare Levy).
Resources for ABCL Members
In addition to this ABCL Member Budget Analysis, below are a number of additional summaries and commentaries Members will find useful.
Australian Chamber of Commerce and Industry Budget Summary
Australian Chamber of Commerce and Industry In-depth Analysis
Australian Chamber of Commerce and Industry Budget Media Release
RSM Federal Budget Report Card – Summary
GRACosway Federal Budget Summary
Budget 2020-21 Documents
The full Budget 2020-21 documents, ministerial statements, portfolio statements and other releases can be found here and a summary document can be found here. A factsheet on taxation can be found here.
Kind regards,
Geoff Parker
Chief Executive Officer