After a fairly optimistic economic outlook in 2019, this year’s Federal Budget acknowledged the unprecedented effects of natural disasters and a global pandemic putting pressure on the economy. This update provides an overall summary of the economy and highlights key issues of interest to actuaries.
All the papers can be found at www.budget.gov.au.
The economy has been thrown into reverse due to COVID-19 impacts and in direct contrast to last year’s $7.1 billion surplus this year the deficit is estimated to hit $213 billion and net debt to hit $703 billion. The Budget’s focus is squarely on supporting employment, directly through specific payments to employers and project spending, and indirectly through increasing consumers’ disposable incomes. The main sources of stimulus include:
- Income tax cuts previously announced for low and middle income earners will be brought forward and backdated to July 2020. These include lifting the 19 per cent threshold from $37,000 to $45,000, and lifting the 32.5 per cent threshold from $90,000 to $120,000.
- Additional cash payments of $500 (in two equal instalments) to recipients of a range of government benefits aimed at supporting lower income Australians.
- Additional business tax concessions, including an instant full write off of eligible assets for businesses with a turnover of up to $5 billion and available until June 2022.
- Additional support for jobs – JobMaker payments to employers (except the major banks) to take on new employees aged under 35 years.
- Additional support for trainees and apprentices through additional training places and wage subsidies to employers.
- Infrastructure spending – restatement of announced projects.
- Additional support for a Modern Manufacturing Plan in six specific sectors.
The Budget makes explicit assumptions about COVID-19 outbreaks and vaccine availability. Key points are:
- Over the forecast period, material localised outbreaks of COVID-19 occur, but are largely contained.
- A population-wide Australian COVID-19 vaccination program is assumed to be fully in place by late 2021.
- A gradual return of international students and permanent migrants is assumed through the latter part of 2021.
- Inbound and outbound international travel is expected to remain low through the latter part of 2021, after which a gradual recovery in international tourism is also assumed to occur.
Unusually, the government has also provided upside and downside scenarios to reflect the high degree of uncertainty around the pandemic. The upside scenario is earlier roll out of a vaccine from 1 July 2021, that could increase economic activity by $34 billion to the June quarter 2022, increasing growth by 1½ percentage points in 2021-22 compared with the central forecast. While under the downside scenario it is assumed that rolling outbreaks necessitate the reimposition of severe containment measures on around 25 per cent of the national economy from 1 January 2021 to 30 June 2022. This would result in $55 billion lower economic activity across 2020-21 and 2021-22 and 1 percentage point lower economic growth in both 2020-21 and 2021-22 compared with the forecasts.
Deferred reforms – retirement income covenant and others
The Government has formally deferred a number of reforms that affect superannuation (many again have already been announced). Most notable is the deferral of the start date for the retirement income covenant which will now be 1 July 2022 (as opposed to 1 July 2020). This will also allow for finalisation of the measure to be informed by the Retirement Income Review which is yet to be released. Other deferred measures include:
- Increasing the maximum number of members allowed in an SMSF or small APRA fund from four to six, pushed forward to the date of Royal Assent of the enabling legislation from 1 July 2019.
- Reducing red tape for superannuation funds (changes made to exempt current pension income) revised to 1 July 2021.
- The 2015-16 measure allowing the ATO to pay lost and unclaimed superannuation to New Zealand KiwiSaver accounts has been revised to six months after the date of Royal Assent of enabling legislation (from 1 July 2016).
- Facilitating the closure of eligible rollover funds (12-month delay to prevention of transfer of new amounts to ERFs and deferral of ERFs transferring accounts to the ATO to 30 June 2021 [amounts under $6,000] and 31 January 2020 [all other amounts.
Previously announced superannuation measures – COVID-19
The Budget formalises a number of measures which have been previously announced. Many as part of the Government’s response to COVID-19 including the existing early release measure that allows individuals affected by the financial impacts of COVID-19 to access up to $10,000 of their superannuation in 2019-20 and 2020-21. The Budget did not include any extension to this measure which currently ends on 31 December 2020. The measure is expected to cost the Government $2.2 billion over the budget and forward estimates period as a result of these benefits being untaxed.
The other COVID-19 related superannuation measure was the temporary reduction in superannuation minimum drawdown rates by 50% in the 2019-20 and 2020-21 income years. The impact on the budget is estimated to be small and unquantifiable.
Your Future, Your Super
The Government is building on its progress over recent years by delivering a package of reforms that will ensure that members’ money is maximised for their retirement. These reforms will save members $17.9 billion over the next decade and will stop the creation of unwanted multiple accounts that reduce retirement savings, implementing Recommendation 3.5 of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. In addition, for those entering the workforce for the first time or wanting to review their superannuation, a new online YourSuper comparison tool will be built to empower members to compare and select a superannuation product that meets their needs.
To further help members, the Government is making it easier for them to know if they are in an underperforming superannuation product. A new performance test will be introduced. Products that fail the test will have to disclose their underperformance to members and sustained underperformers will be prevented from receiving new members.
Finally, the reforms will improve the accountability and transparency of superannuation funds by legislating a stricter requirement for trustees to ensure that expenditure is motivated solely by the best financial interests of members and ensuring they disclose how they are spending members’ money.
Natural Disaster Mitigation, Energy and Emissions
Major natural catastrophe items will be deferred until the Royal Commission into National Natural Disaster Arrangement report is released.
Water infrastructure and resilience
However, it was announced that there will be “$2 billion in new funding to build vital water infrastructure across the country as part of our national water grid including dams, weirs and pipelines.” An additional $1.8 billion in funding for the environment which includes wildlife, parks and marsh restoration.
The Government is banning the export of plastic, paper, tyre and glass waste, investing $250 million to modernise our recycling infrastructure and further creating 10,000 jobs.
There will be $1.9 billion in new funding over 12 years from 2020-21(including $628.5 million over four years to 2023-24) as part of the energy plan to support low emissions and renewable technologies with the Government’s aim to help lower emissions and address climate change.
Supporting gas supply
The Government will also provide $52.9 million over four years from 2020-21 to support a gas-fired recovery and strengthen the economy by taking steps to unlock gas supply, deliver an efficient pipeline and transportation market, and empower gas customers.
Private Health Insurance
The Government has confirmed it will increase the maximum age of dependants allowed under PHI policies from 24 years to 31 years, and is also removing the age limit for dependants with a disability. This will allow dependants to remain on the family policy until the start of the Lifetime Health Cover loading. To continue its support for greater transparency of out-of-pocket costs, further funding has been provided to continue enhancing the Medical Costs Finder website. The Government will also make home and community-based care more accessible through PHI commencing with mental health and general rehabilitation services. Formal consultation on the implementation will commence with the sector in October 2020. The government is also planning to do further study of Lifetime Health Cover and Risk Equalisation.
Telehealth Funding Extended
$111.6 million of funding is being provided to fund the extension of temporary COVID-19 telehealth services.
The Government will provide $100.8 million over two years from 2020-21 to provide up to 10 additional Medicare-subsidised psychological therapy sessions each calendar year nationally (up from 10 per annum currently) under the Better Access to Psychiatrists, Psychologists and General Practitioners through the Medicare Benefits Schedule (Better Access) initiative. There is also $76 million from 2019-20 to 2021-22 for providing critical mental health support to people, communities and first responders impacted by the 2019-20 bushfire emergency.
National Partnership Agreement with Private Hospitals
Under the National Partnership, the Australian Government pays for 50 per cent of costs incurred by hospitals and state public health authorities to assess, diagnose, treat and contain COVID-19. In addition, the Australian Government meets 100 per cent of the cost of ensuring that private hospital beds and the private hospital workforce are available to supplement public hospitals during COVID-19 outbreaks. The government has confirmed that this agreement is continuing. Based on data to 30 September 2020, this partnership has cost $3.45 billion, of which the largest items were the Minimum Viability Payment of $1 billion and PPE of $997 million.
Social Security Measures
NDIA and NDIS
The Government will provide the National Disability Insurance Agency (NDIA) and the National Disability Insurance Scheme (NDIS) Quality and Safeguards Commission with an additional $798.8 million over four years from 2020‑21. This additional funding will support the NDIA’s continued implementation of a mature and effective NDIS that will support an estimated 500,000 participants with significant and permanent disability. This additional funding will also support the NDIS Commission to carry out its role in regulating NDIS providers nationally, improve the quality and safety of NDIS supports and expand its compliance and investigative capacity into disability services.
The Government will provide $2.0 billion over four years from 2020‑21 to further support older Australians accessing aged care by providing additional home care packages as well as continuing to improve transparency and regulatory standards. Funding includes:
- $1.6 billion over four years from 2020‑21 for the release of an additional 23,000 home care packages across all package levels.
- $125.3 million over three years from 2020‑21 to replace the Commonwealth Continuity of Support Programme with a new Disability Support for Older Australians program to ensure that older Australians with disability who were not eligible for the National Disability Insurance Scheme continue to receive support they need.
- $91.6 million over two years from 2020‑21 to continue the reform to residential aged care funding including undertaking ‘shadow assessments’ using the Australian National Aged Care Classification.
This general summary has been prepared for information only. Please refer to the Budget Papers for details in relation to specific issues.
View the Actuaries Institute’s 2020 Budget Media Release here.
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