State of Play: Budget 2020
Hi everyone. And welcome to our State of Play. So this week I’m embracing the new normal hate that term, but I am like coming to you from home. So exciting times, I’m loving technology at the moment. What I thought we’d do today is we’ve had a lot of questions about the budget and what it means for you. And it is an amazing budget. We’ve never had a budget like this since the Great Depression. So we’re really adopting what Franklin D Roosevelt did back then. And the government is spending like never before. So, so many winners in this budget, and it’s important to be across it because there’ll be something in it for you. And you want to make sure you take massive advantage of everything that’s out there. Time of huge opportunity and I know that our business turnaround clients who are out there trying to buy distressed businesses are really experiencing a rising tide now because it was a budget very much for business owners.
And the idea behind it was, let’s kickstart the economy. If the government spends money and put some money into businesses, then those businesses are going to hire people. So they call it helicopter money. And it’s from like Keynesian economics, where they’re going. But the idea is to spend your way out of trouble. So huge government debt that will take agents to repay, but it is the jaws of life or the defibrillators on the economy. So let’s have a look and break it down, because you don’t know what you don’t know. And what if you’re missing a huge opportunity or something coming your way in the budget. What will it mean for you? So just sharing my screen with you here and let’s deep dive and get under the hood of the budget. So as I said, a lot of winners in this budget. So Josh Frydenberg has said we’re in the worst economic crisis since the Great Depression.
And there were tax cuts, announced by the coalition. And what they’ve decided is they’re going to bring those tax cuts forward and backdate them. So the tax cuts that we’ll do to start next year have been backdated. And it will be implemented as at the 1st of July 2020. So that’ll put an extra $12 billion into the economy. And many people will be entitled to extra from those tax benefits. So if you’re in the 19% tax bracket, that’s going to go from $37,000 up to $45,000 per annum. So they’re raising the bar so that your marginal tax rate’s going to be lower. So 32 and a half percent tax bracket is going up from 90 to $120,000. And those in the 45% marginal tax bracket, that’s going up from 180 to $200,000. The other thing is that Australian businesses have so many wins in this budget.
So one of the things is that they can write off all of their assets until June 2022. So they had asset write-off some and they were kept and people didn’t take advantage of them when everything hit with COVID because you had to spend money to get money back. And everyone said, well, I’m not spending money. I just have got to keep it on hold and see what happens and wait, and see, now that things are going from bad to hopefully less bad businesses are feeling confident, more confident. And a lot of businesses say that this is not the best quarter that they’ve had ever. I had someone deliver some outdoor furniture to me the other day. And he said, he’s been in business 35 years. He just had his best quarter ever. And he had zero advertising or marketing at all. And I think people are just sitting at home, Googling, looking to buy, looking to invest more in their homes because we’re staying at home more.
So definitely what we’re doing and how we’re spending has changed. And the government’s attitude has been, yes, there will be some businesses that lose and some businesses that change hands, some that go under all together. But what we want to do is channel money now to where it is best used, best needed, and can best be deployed to create more jobs. So they’re saving as many people as they can. And personally, that’s my mission in business turnaround is to save as many businesses as we can with an army of people as a community because the government is aligned to this right now, they’re making new laws and we’ve talked the other week about the new laws for insolvency, where we’re modeling chapter 11 American laws that enable saving businesses and propping up the economy as best they can. So instead of a culture of punishment where businesses circle the drain, they’re making it easier to do business and easier to salvage business restructure, get rid of debt.
So incredible time for business in Australia right now. And the idea is that there’s going to be more money in circulation. So you can see there from those tables, what’s happening with income. So there the lifting and raising the bars of the tax brackets and what people were winning and how that puts more money into the economy. Other winners are manufacturing. So there’s more government grants. And I’ll show you shortly the website you can go to, to check if you qualify for government grants, it’s basically business.gov.au, and they set out their all off the grants. Now these, this hasn’t, this budget is a plan. It hasn’t all been passed and enacted into laws yet neither have the new insolvency laws that they’re flagging. So I’ll give you a heads up as of when that gets passed, but you need to be watching this space because so much opportunity.
And you want to align yourself with where the money’s going. So States are encouraged to spend, so the government’s channeling $10 billion into the States. And so that they don’t sit on it because they want it to be a, like an insulin injection. They want it all to come into the economy quickly, but sooner they use it in the quicker they spend it, the more they get and it kind of expires. It’s like an ice cream cake. If they don’t spend it quickly, there’ll be nothing for them to get. So they want the money into the veins of the economy as fast as possible. They’re putting more money into aged care, into gas, Northern territory, mental health, obviously with what’s happening with lockdowns and whatnot, as well as affordable housing. So an extra billion dollars going into affordable housing, money into film and television studios, ecotourism, pensioners will get more, migrant families will be boosted and that’s to save the property market and to boost the economy with population growth.
So 30,000 family members of migrants can come through to Australia. So they’ve created more family stream places in the country. So easier to come in, because we’ve lost some visas and students Visas and lost some money there. And we’re looking to make it up elsewhere as well as small businesses will be able to carry losses forward and into the future and get tax refunds. Research and development gets a big hit as well as startups. So small businesses with a turnover of 10 to 50 million, we’ll be able to claim further tax breaks. And just to encourage them to spend, basically if we go out and expand and buy more computers and more desks or whatever it is photocopiers, the government is going to put money back and give you tax breaks and concessions for that as well as money into retraining workers.
So a lot of money and a lot of this budget is aimed at employment and bolstering skilled workers in the economy. And if you’re in business, huge opportunity there. So fringe benefits tax won’t apply. If you’re reskilling workers who would have otherwise been redundant as well as, and this is a big one, unemployed young people. So that’s under 35 will receive a wage subsidy and effectively what that means is the government will pay half of their wages. So really attractive for employers to expand when the government’s footing half of that bill, when they first said job keypad that applied to everyone, and now they’re channeling it into areas of the economy that they want to boost. So they don’t want to encourage zombie companies. They don’t want to keep businesses on life support that aren’t going to work, but they do want to deploy jobs and income elsewhere in the economy where it will work.
So for example, big losers, probably in this budget at the moment, are businesses in the CBD that depended on that hub and that bums, you know restaurants, cafes, those industries that supported the CBD, especially around areas like Chinatown and the areas. It ran the education areas like for example, in Sydney, UTS, and some of the Unis around there depended on foreign students, as well as local workers in the CBD. And that’s just gone out and what the government haven’t attempted to fix that up or address that. But what they have said is, “Yes, some businesses, the world’s change forever a bit like horse and carts are gone, we’ve moved to cars and we’re not going back. But what we can do is create more jobs around cars rather than defending the status quo of horses and carts. So more money for apprentices wanting to create a 100,000 jobs each year with apprentices.
And the first home buyers scheme has been extended and expanded. So that means that the government will guarantee first home buyers loans if they have a deposit of 5%. So all that first home buyers neediest 5% of the government will guarantee or underwrite the balance of the 15% to take it to a 20% deposit. And they’ve lifted the cap for that from 750,000 to 950,000. And Leiston in New South Wales with property prices are more expensive and it’s raised in other States as well. Additionally, for property owners, they’ve scrapped capital gains tax on granny flat. So they’re encouraging infill, they’re encouraging affordable housing that way. And for people to have a second income or stream of income with a granny flat or a complying development. So quick and easy to build with additional income puts more money in everyone’s pockets, more jobs for builders of building a construction and winners around.
So some of the losers are future generations, like literally they’re expecting a trillion dollars worth of debt over time because of all this government spending. On top of that, we’ve got job seekers who are going to lose out. So the money’s being channeled to where there is a greatest return on investment. So they’re stopping the $250 coronavirus supplement. So job seekers go back to the normal Centrelink benefits that they had before Corona virus, they’re also making superannuation funds more accountable by ranking their performance. And the labor government are going to, it’s a great budget like this with money into the economy and into the taxpayers’ pockets. We’ll give the coalition government a big thumbs up and liked by everyone, big banks and miners. So the big [inaudible] at the high end of town, they’re not getting any of the benefits. So the wage subsidies and the new investment write-offs, don’t apply to those big institutions, as well as international travelers, there was no hint from the government as to what they’re doing in terms of lifting bans around international travel.
The markets liked the budget, which is good news for all of us, because all the rating agencies like Standard & Poor’s, of Moody’s and Fitch said that Australia is looking good rather than other economies in the world. So we have a very enviable, triple-A credit rating for our banks and for our economy. It means that if they look at how risky investing in Australia is, it’s not like investing in a war torn country or Greece or a country that economically has a lot of debt we’re looking good, even though we had debt and the rating agency said, Gee, we’re going to take one of your A’s away. You may have a AA rating, but we’re seeing you as more risky. So we’re going to revise our assessment. The budget was good news and the rating agencies soared as a boost for our economy.
And then the numbers there as to how the government debt is impacting and how it will get paid off over time. So yes, we are spending our way out of this. And as we’re developed, we have nothing to fear, but fear itself. So a very bullish budget from Josh Frydenberg to say, “Well, let’s all spend, and that will create more money in circulation.” What they’re expecting then is for unemployment to rise initially into next year. But then ultimately things will start to get better as on we spending flows through the system. So it’s always the way with a recession. And some argue in this case, a depression, an unemployment is still going to get worse. Things get bad really quickly. They call it the express elevator to the basement, and then you have to take the stairs out. So it takes many years to get back to where we were before, but before economic support, it would have been a lot worse.
So our real GDP of the amount that we earn as a country is going to get a lot better. It didn’t go as bad as it could have gone. That’s the black line there on the left, and we’re going to climb our way. You can see how we went to, if that, that steep line on the left, the blue line and the black line, that’s the express elevator to the basement. And we can see us climbing the stairs up, but it’ll take back to June 2022 to get back to where we were before. And with the government support that we’ve got will surpass it. We can see the black line there from June 2022. So we should get there this time next year. Now all of this was predicated upon us finding a vaccine by next year. So if they don’t find that vaccine, the budget kind of wide stay on track, we can see the unemployment rate.
If we had had job caper and all the things we’ve had, we would have gone up to 13%. It has kind of come off slowly. We can see the black line there with the government support. It’s going to come off slowly into June 2022, but no win here where it was at the 5% prior to Corona virus hitting. And you can see where it really hit in April and May and unemployment spiked. So it’ll take a while. And Josh Frydenberg’s commitment was the government will still keep pumping money into the economy and still keep spending and give it support until unemployment gets down below 6%. So you can see either by June 2022, they’re not predicting unemployment below 6%. What it means for the property market, because many of us have wealth tied up in property is that people will stop investing at this financial year.
And the contraction will be 11% at its worst. So less severe than what was predicted. But by next year, financial year, 2022, it will climb to 7%. On top of that with the extension of the first home buyers scheme and the government guarantee there, the home builder scheme, where the government will give grants of $25,000 for a new build or renovation and an additional billion dollars going into low cost, affordable housing, investment is going to recover in the property market. So it slipped a bit nowhere near what they expected. Of course, we haven’t had the worst of it yet. We haven’t had those loan deferrals come off and we haven’t seen job keeper disappear yet. That’s going to go well into next year. So higher unemployment will mean there are some casualties of war, but people have just not sold their homes and property prices haven’t fallen.
But when they do, they’re expecting it to be no worse than 11%. On top of that last Tuesday, we had an interest rate decision from Reserve bank governor, Phillip Lowe. And what he said was that the Reserve bank will also support the economy through monetary policy and easing monetary policy further to support jobs, which is interesting because interest rates are so low they’re at 0.25%. And Philip Lowe has said, he’ll never go to zero. So economists are expecting as soon as next month, some of them are tipping that interest rates will drop to 0.1%. Some of you may remember Mario Draghi who was head of the European central bank in the global financial crisis. And he said that they would lower rates as low as they could. And he actually said his words were “Whatever it takes.” And they went to zero interest rates. So Philip Lowe adopted similar rhetoric there, [inaudible] speaking of what he’s going to do with interest rates and what the Reserve bank have in mind.
And they’re kind of saying “Whatever it takes, we will ease monetary policy further. We’ll lower interest rates further to support economic pick up and creating more jobs.” So how does all of these help or what they’re predicting is that business investment will fall, but not as badly as they thought, not a complete collapse. And it will start to improve. Unemployment will end up at 7.25% this financial year, and the government’s 6% target where Josh Frydenberg says, he’ll stay with us and hold our hand and keep putting money into the economy till we get below 6%. That won’t happen till 2024.
So huge focus on job creation and stimulus in the economy. Put it more in layman’s terms, billionaire Jerry Harvey, or Harvey Norman, Richard Fame said, “This is bloody fantastic. Its great news. There will be more people in our shops that’ll spend more and the knock on effect and [inaudible] on our effect from that obviously is more jobs.” And Josh Frydenberg put it this way. “Once the recovery has taken hold and the unemployment rate is on a clear path back to pre-crisis levels, that’s below 6%. We’ll move to the second phase where there is a deliberate shift from providing temporary and targeted support to stabilizing gross debt as a share of the economy.”
So at the moment, they’re just trying to pump money into where it will get into our veins quicker and have a greater effect. It’s a bit like taking oral antibiotics if you’ve got an infection or if it’s really serious and they need to get the cure into you quickly, they put the IV needle into your vein so it gets into your bloodstream faster. That’s what they’re trying to do here. And Australia’s unemployment rate wasn’t as bad as they thought.
So it was only 6.8% last quarter. They predicted it to be well into the sevens, but unemployment figures are released this week are going to show that probably it’ll be at more than 7% so back to the one million Mark. For more information about how this helps you and your business and I’ve been looking into this because we’re expanding and hiring. And obviously I want to take advantage of grants around studios and TV and film that are out there as well as by employing more people, especially those who are unemployed, young workers, and that the government are going to subsidize their wages to the tune of 50%.
So you can find that sort of stuff on this website, www.business.gov.au, but also we’ve got a handful of places because we’ve had a lot of client inquiry and such to support people who don’t know what they don’t know and want to find out more for their particular situation to get more over bespoke input, we have made available, it’s handful of strategy sessions with Don, Don Brown, his ex Deloitte accounting. I wanted to have an advisory accounting side of our business. In other words, not just rubber stamping and filling in tax returns, but to be able to give advice in advance as to what’s possible prior to just filing a tax return every June.
So Don’s across the grants and what’s happening and what it could mean for you or your business, or getting money in your pocket now in terms of backdated tax cuts and that sort of thing. So, that’s stuff that you need to be across right now. And so I’ve made that available. You can go to a link now to take advantage of that. And we’re going to put a link in the comment section and in the description section. And if you’re watching this as a recording later on, you can click on that.
And if spots are still available, if they haven’t been snapped off, Don has made availability in his diary to support our community with free consultations as to what’s possible to make sure you’re maximizing, what’s coming to you from this great news all around budget. So go to those links if you want to take this offline and talk about your situation with Don, otherwise in the meantime, such opportunity, make sure you execute, make sure you implement, arm yourself with knowledge, but most importantly, take action. So many people are taking action right now. There is such a rising tide, a lot of the job figures where they expected the unemployment to be over 7%. And it was only 6.8% last quarter, and 111,000 new jobs were created. Most of them more than 50% of them were people actually rolling up their sleeves and becoming entrepreneurs.
So seeing opportunities, making space for themselves and riding that wave in this time of disruptive change. So make sure you keep your eyes and your ears open and seize opportunity when it comes your way, because this is once in a hundred years, your children, your great grandchildren are going to be saying to you, well, you lived through that pandemic. It must’ve been an amazing time. So make sure you don’t miss out. And you seize the opportunity. In the meantime, don’t forget to keep following us on Facebook, tag your friends in and family members. We want to create a like-minded community and a ripple effect, and don’t forget to like us and subscribe. If you’re watching on YouTube and we hit the bell so we can notify you every time we release new content. In the meantime, stay safe, everyone take care, and we’ll talk soon on our State of Play.