Federal Budget 2021: Spending in most of the right areas

Tonight’s Federal Budget delivered by Treasurer Josh Frydenberg contained few surprises.

As expected, there are forecast Budget deficits as far as they eye can see; albeit not as high as the October Budget predicted owing to the stronger than expected economic recovery and the iron ore mega-boom:

Budget aggregates

A decade of deficits?

The budget projects that the nation’s unemployment rate will fall to 4.5% by 2023-24, although curiously no real wage growth is projected until 2024-25:

Budget parameters

Unemployment is forecast to fall to just 4.5%.

Real GDP is basically forecast to return to trend, despite much slower population growth. This suggests that per capita GDP will grow strongly:

Australia's real GDP

Australia’s real GDP growth is projected to return to trend.

With Australia’s border closed to foreign workers, the labour market is also tightening. The ratio of unemployed people to vacancies is now at its lowest level in over a decade:

Without 180,000 to 200,000 migrant workers arriving every year, Australia’s labour market is tightening.

This explains why the budget forecasts the unemployment rate will fall to its lowest level since before the GFC, despite record high labour force participation:

Forecast unemployment rate

Unemployment is projected to fall to its lowest level since the GFC.

The budget also assumes that iron ore prices will fall abruptly from their current record highs:

In line with the prudent approach to forecasting volatile commodity prices, elevated iron ore prices are assumed to decline and the terms of trade are expected to fall by 8 per cent in 2021-22 and by a further 10½ per cent in 2022-23…

The iron ore price is assumed to decline to US$55 per tonne FOB by the end of the March quarter 2022, three quarters later than was assumed in the 2020-21 Budget.

As expected, the Treasury projects a return to ‘Big Australia’ immigration by 2023-24:

Net overseas migration is significantly affected by international travel restrictions and weaker labour markets globally. It is forecast to fall from around 194,000 persons in 2019-20 to be around -97,000 persons by the end of 2020-21, and then to -77,000 in 2021-22 before increasing to 235,000 persons in 2024-25. More broadly, the weak outlook for population growth in the near term as a result of border closures will also weigh on the outlook for real GDP growth.

Accordingly, population growth is projected by the Treasury to accelerate from next year:

Australian population projections

Back to a ‘Big Australia’.

The federal budget conveniently makes no mention of per capita GDP growth, which will benefit greatly from the fall in population growth.

Budget spending announcements:

This is a big spending budget that mostly targets the right areas.

Below is a list of the key announcements:

  • $1.9 billion is allocated for the roll out of vaccines.
  • $1.5 billion for COVID‑related health services, including for testing and tracing, respiratory clinics and telehealth.
  • Extension of the low‑ and middle‑income tax offset for another year, which will benefit 10 million low‑ and middle‑income earners ($1,080 for individuals or $2,160 for couples).
  • Extension of asset purchase write-offs for Australian businesses until 30 June 2023.
  • Another 10,000 places in the first home buyer deposit guarantee scheme.
  • 10,000 places for single parents to purchase a home with only a 2% deposit.
  • Increasing the amount that can be released under the First Home Super Saver Scheme from $30,000 to $50,000.
  • $2.1 billion in targeted support for aviation, tourism, the arts and international education providers.
  • $2.7 billion of funding to create more than 170,000 new apprenticeships and traineeships.
  • 5,000 places in higher education short courses.
  • $1.7 billion to increase the affordability of childcare for low‑ and middle‑income families.
  • $15 billion in additional infrastructure commitments.
  • $1.2 billion for the Digital Economy Strategy.
  • $1.5 billion to expand manufacturing activity and create jobs across six priority areas, including medical products and clean energy.
  • $2 billion in R&D tax incentives as part of the Modern Manufacturing Strategy.
  • A further $13.2 billion over four years for the NDIS.
  • $17.7 billion for aged care to fund another 80,000 new home care packages, as well as to increase the time nurses and carers are required to spend with residents, and increase training places.
  • $2.3 billion funding for mental health care and suicide prevention.
  • $2 billion to fund preschools and $19 billion in funding for universities in 2021‑22.
  • $1.1 billion in women’s safety.
  • Enhancing the Pension Loan Scheme by providing immediate access to lump sums of around $12,000 for singles and $18,000 for couples.
  • $1.6 billion to fund priority technologies, including clean hydrogen and energy storage.
  • $10 billion government guarantee to make insurance more affordable in Northern Australia.
  • $270 billion over 10 years to boost our defence capability.

One obvious omission is that the budget does not include any funding to build national quarantine facilities modelled on Howard Springs. This is a big miss given robust quarantine is Australia’s number one defence against the virus.

Nevertheless, my initial impression as I write this at 9.20pm on Tuesday night is that this budget spreads the fiscal fire hose far and wide across a broad range of areas.

The tax relief is generally well targeted, there is lots of spending on economic and social infrastructure, and not too much blatant pork.

Overall, it’s a decent budget that’s right for the times.

Unconventional Economist
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    • Ronin8317MEMBER

      House prices will go up until every house in Australia will cost over 1 million dollars!!

  1. Mark this down in your notes as the day the government officially made subprime lending a budget item. 2% down for single parents. Once this hair brained scheme runs out of steam I recommend going for the 0% down investment loans for strippers with more than 2 investment properties.

    • RobotSenseiMEMBER

      I can’t wait to spend my working life paying back Joshie’s $1T economic wet dream.

      • Cynical snake

        But that’s the beauty of the thing, like aussie mortgages it won’t get paid back, the government debt will just get bigger and bigger…

  2. Goldstandard1MEMBER

    That’s your headline? How about spending WAY too much money we don’t have and will never pay it back?
    No structural change thinking here and kicking the can down the road to buy votes. Disgrace.

  3. PalimpsestMEMBER

    Yeah. We get to import and write off a lot of cars n drills n stuff. Ripper. Some dough into medical startups. Actual R&D or big boost for CSIRO, or maybe the UQ vaccine – nah, not so much. Green tech? Wash your mouth out – there’s no lowering of power prices here and depriving our impoverished carbon mates. No building quarantine – that’s just defeatist talk – our mates vaccines will do it. Vision? Future directions? I dunno, solar powered lithium plants or something. Not this budget. A lot of splash. How much will go to where it’s claimed … the record hasn’t been great.

    • Arthur Schopenhauer

      Yep, and the renewables comes down to ‘carbon capture’, Ie injecting co2 into old gas wells. Just more money to the fossil fuel industry, for technology they know doesn’t work. Huzzah! $$$

      Tax breaks for Tradies a voting demographic too.

      Serious STEM, forget it. No imagination or intelligence in that lot.

      • There is still some serious STEM happening in Sydney, but frankly I don’t know why?
        The trouble is that the best of our STEM is being corrupted by poorly thought out policy and basically pandering to policy.
        I really like what I see by way of highly differentiated products at companies like Blueprintlabs
        Complex small scale robotic arms with the added complexity of doing it all underwater. It’s got to be a high growth emerging market what with offshore wind and offshore solarPV creating lots of ongoing remote service requirements, but as with all Aussie startups they seem to be chasing government dollars, I just hope they don’t lose sight of the real markets for this technology.

  4. All I see is a whole lot of spending with very little to show for it. It’s classic Morrison show over substance. The media insist on presenting the tax offset as though Josh is sending everyone at $1080 cheque. He isn’t, its a tax offset. A whole lot of nothing. Big whoop.

    The further tightening of screws on the unemployed was a nice touch though. /s

  5. Listening to ABC via Leigh Sales interview with Joshy (I’m no fan but…) & her most potent questions relate to when are you bringing in more overseas workers to help with the lack of skills (no facts or statistics as usual) & then how are you going to bring in more overseas students to help the poor universities (again no facts or statistics). F$Ck me we have no hope?
    Oh & that Gabby D’Souza person is on again spruiking the usual crap re migration blah blah blah. How can the narrative be changed ever in this country? Her first comment is “in 2023 we get back to 200K+ migrants & this is good as it is in line with pre Covid”. How about ask the question Why The Fu#k did it ever get to that when it was always way lower than that & we were OK? So NOM being negative is automatically bad for the economy! WTF? Who says & why didn’t that useless ABC interviewer ask the question why would it be bad for our economy? As usual no facts, no statistics.
    The rent seekers have won this Migration thing & no-one can ever get rid of it. It will always now go back to big Australia & NOM > 200K. Can’t be fixed ever again. Chalmers is now blahing on & I can’t say I wouldn’t do the same as what else can he say. But he can’t get the link between low wages growth & massive excessive NOM. (personally think he does get it but is not allowed to say that as the Rent Seekers will cut his round things off if he goes against their wishes & payments. Pretty much just like all OZ politicians).

    • Jeremy Hernandez sat there mute on this leaving it unchallenged – “ we need more skilled migrants to bus tables and cook food, I have to train someone then it doesn’t work out.”

      “Why don’t you do a better job hiring “
      “ why does it so often work out with locals but works out with foreigners? I mean this isn’t rocket science. It’s cooking food and serving people in what looks to be a pub or rsl”

      These people

      • Last night some lady on abc tv was whinging that that there was a shortage of chefs (especially wok chefs) and the hotel couldn’t open on sun-tue, she was blah blah we need to get skilled immigrants in asap, but magically on the rest of the busiest days they have enough chefs! And I was in Hurstville the other night all restaurants open and working fine so no shortage of wok cooks there, maybe they are paying a good wage there, which is the crux. And if Australia can’t supply wok cooks it’s because we are not paying enough & our TAFE is not meeting the market

    • Pre COVID, our “industry policy” consisted of Big Mining, Big Real Estate, Big Australia, and Export Education. Post COVID, only the last one is in much doubt.

      In effect, the only way that Frydenberg can get near 2.25% “real” growth in 2023-24 is via mass migration. But everyone accepts that, no questions asked. So, you’re right, we’re stuck with it forever.

    • People don’t attain the positions that Leigh Sales and Gabby D’Souza have with that amount of volume without repeating the views that they do. If they didn’t espouse those views they wouldn’t be there and someone else would fill the puppet booth and give the sermon. And changing tax settings, monetary chicanery and cutting the rates won’t stop the rot, it will just give further fuel to the status quo.

  6. Lord DudleyMEMBER

    4.5% unemployment is high enough to constrain wage rises, just sayin’. Australia’s government is pro unemployment and has been for years.

    Also, I note that at least 3 items in there are specifically designed to be leveraged into debt to bid up housing.

    No structural changes at all. Mostly staying on the same course as before, but with a slight increase in the rum ration to keep everyone’s mind off the dangerous uncharted waters Australia is sailing into.

    • Nailed it.
      I remember realising around 1998 that every economic policy, every decision made by the govt revolved around the sun that is rising house prices. When you realise that everything clicks into place. It’s also when I realised how far this country had changed from the fair egalitarian decent place it used to be. And when I realised I wanted no part of it.

      I’ll be over there with you Lord Dudley as soon as the fascists here decide that we can leave again.

        • Lord DudleyMEMBER

          It’s not, but it’s more of a meritocracy than Australia these days. For all its faults, the dude with a PhD in mathematics gets paid quite well here.

      • Lord DudleyMEMBER

        “I remember realising around 1998 that every economic policy, every decision made by the govt revolved around the sun that is rising house prices.”

        Zoiks! You beat me to it. I didn’t really understand that until about 2006 or so.

  7. working class hamMEMBER

    It seems CEO’s will not have to pay tax on shares (if offered a share package) when they leave a company.
    Newsdotcom estimate it could be worth $550bn in lost tax revenue. Twice as much as the defence spending.

  8. working class hamMEMBER

    This is vote buying at its best, sugar coated turds with nothing of substance. No crisis funding for homeless, private school pork, WA infrastructure pork, backdoor childcare industry pork, the list is endless.

    Half of the feel good support packages, apprenticeships, aged care, mental health, universities etc. are problems of their own making, by either gutting services previously or by the social destruction caused by other financial policies.

  9. Arthur Schopenhauer

    It’s a very poor budget. There’s nothing beyond an election next year. No significant money to ‘build’ Australia’s future, but lots of blatant rorting opportunities.

    It’s hard to comprehend how a so-called macro economics blog gives it a tick of approval. The old political maximum of ‘never waste a crisis’ has not been lost on our regional neighbors or the new US administration, yet here is Australia kicking the can down the road. So much spending with so little to show long term.

    Like a company burning seed capital on vanity offices, or the idiot grandchild burning 🔥 an inherited fortune built over generations.

    This is a bad budget, if you look beyond the next 12 months. There’s nothing for the future. It’s a desperate rear guard action to sustain the unsustainable.

    • surfbeach2536

      Makes the 500 million bailout of the car industry that Hockey was asked for look like change from your kid’s pocket money.

      And as UE says “The federal budget conveniently makes no mention of per capita GDP growth, which will benefit greatly from the fall in population growth.” The mass immigration scheme is for the economy not the people.

      • Lord DudleyMEMBER

        The whole abandoning of the auto sector really grinds my gears. Every country on Earth that makes cars subsidises the industry, and for good reason. And there Australia was, with its AUDUSD rate of 1.12 at the time, saying that the auto industry needed to “make room” for mining, both in terms of labour availability and capital investment.

        Now, here we are, with AUDUSD hovering in the mid to high seventies. Just around the exchange rate where Australian manufacturing becomes profitable (or at least, that was the case about 13 years ago…). Australia could have been building any manner of stuff now… probably SUVs and utes, but at least they’re popular and provide platforms to retool to support electric which is coming. But nope! The industry is dead. Anyone with the ability to engineer these things is getting out while the getting is good.

        I don’t think Australia can recover from this. It’s a doom-loop of every engineer leaving or changing career. Once they’re gone, they’re extremely difficult to get back.

    • I agree, but what choice do they have?
      Frankly I’d prefer it if the gov’t just got ahead of the whole housing issue by explicitly making all housing loans Non-recourse. It’s clear to anyone that does the numbers that our housing loans are already nonrecourse loans because there is simply no way that these absurd prices can ever be repaid in the eventuality of a real downturn.
      The process of explicitly creating non-recourse loans would give the banks (and their lenders) reason to think beyond the next quarter and by doing this the government could distance itself from the rescue actions that it took to effectively underwrite Aussie banks at the start of the GFC.
      What’s this got to do with the macroeconomy? everything and nothing is the short answer.

  10. pfh007.comMEMBER

    A massive pre-election vote buying exercise at the expense of future generations.

    One of the greatest failings of the ALP and the Greens is their inability to comprehend why public debt matters.

    As a consequence they rightly get flogged if they incurr public debt and yet seem unable to understand why they should be flogging conservatives when they incurr mountains of public debt…on pork and mates.

    Until the ALP and Green understand the difference between interest bearing public debt and a larger interest free central bank balance sheet they will continue to get flogged by conservatives and be left looking slackjawed and paralysed and stuck in opposition.

    But of course if they wanted to do something about the problem they would have to end the monopoly and hijacking of the central bank by the bankers and they lack the wit and spine to launch reform on that farce. Until they allow non-banks and the general public to operate accounts at the RBA the central bank balance sheet will remain a puny joke with little to do beyond facilitate the business model of our hopelessly incompetent, dysfunctional and bloated banks.

    Not that they get much support from the progressive chattering classes / chattering press who care so much but not enough to call out the banker centric public monetary model that fluffs the prices of their assets

  11. How good is $270B on underwater tin cans. Bugger me that’s a waste. The small amounts will get lost in admin costs.

    • Arthur Schopenhauer

      To be fair, there’s also the 72 stealth fighters that can’t fly supersonic without the stealth coating peeling..

      • Just stick some colorbond on the outside, they are doing matt colours now. We can use the offcuts from all those house subsidies.

  12. I still find crazy Dental is not include in Medicare.Why this body part not covered.So many are suffering.I was hoping some surprise fix in the budget.

        • happy valleyMEMBER

          Because their over-the-top charges would probably be capped under Medicare, whereas under private insurance they can effectively charge what they like and the fund member picks up the shortfall after the lousy benefits paid by most funds?

          I use two dentists, neither of whom works Wednesdays – one is at the golf course and the other is minding his grand kids.

          • Also, I think that most health funds have their own in house dentists where they effectively bulk bill anyway. Not sure about the quality though.

          • Arthur Schopenhauer

            There’s a lot of Dentists sailing on Wednesday afternoons.

            And let’s face it, looking into peoples mouths 👄 all day would take its toll! 😀

        • They don’t want it because the government wades in and sets a random, nugatory fee for each service which doesn’t cover the cost of opening the doors, staff, rent and equipment.
          When you charge more than this fee, patients get very exercised about your failure to charge the government-determined fee.

    • Cynical snake

      I think you’ll find it’s far more likely that your Dr will STOP being covered, than your dentist START, here in Oz.

  13. The Pension Loans scheme changes look ok.

    They have also Scrapped the $450 min per month before Super Guarantee kicks in. What’s not said is that that amount now presumably comes out of the pay packet and not out of the employers pocket.

    • Cynical snake

      Maybe, but it removes the incentive to limit shifts to keep people below the limit.

  14. Lack of adequate quarantine will be a major factor limiting mass migration into Australia. Is this worth protesting about?

  15. Josh still looks like the kid that paid someone to do his homework then at the last minute yanks the report from the person and parades it in front of the teacher with that cheeky grin on his face.

  16. bolstroodMEMBER

    “Overall, it’s a decent budget that’s right for the times”
    No it is not.
    This budget makes absolutely no mention of the Climate Catastrophe that is engulfing the world,
    nor does it offer 1 cent to do anything to mitigate the tsunami of cascading climate disasters that are occuring before our eyes
    The Amazon Forest is now a CO2 emitter
    The Ocean conveyor currents are dramatically slowing
    The polar ice that reflects much of the suns heat that reaches the Earths surface is in rapid decline
    These and other feed back loops, like the Methane realease from the melting perma frost regions are now kicking in,
    and as they do they sound the death knell for life as have known it, not in our great grand childrens life times, not in our grand childrens life times, or our childrens life times, … but in our life times , right now.
    If you think this budget is “Riight for the times”, you need your head read.